Accessibility navigation


An early warning indicator for liquidity shortages in the interbank market

Eross, A., Urquhart, A. and Wolfe, S. (2019) An early warning indicator for liquidity shortages in the interbank market. International Journal of Finance & Economics, 24 (3). pp. 1300-1312. ISSN 1099-1158

[img] Text - Accepted Version
· Restricted to Repository staff only until 7 March 2021.

933kB

It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.

To link to this item DOI: 10.1002/ijfe.1719

Abstract/Summary

This study investigates an early warning indicator for liquidity shortages in the short‐term interbank market. To identify structural breaks and their persistence, an autoregressive two‐state regime switching model is presented. The variability in the LIBOR–OIS spread along with thresholds, which delimit four intensities, reveals regime changes consistent with liquidity crashes. The transition between the states is state dependent, and the posterior estimates for the crisis and noncrisis states are estimated using the Gibbs sampler. We forecast our early warning indicator up to December 2011 and show that the estimates are superior to a random walk with drift. Therefore, the model is an effective early warning indicator of an imminent liquidity shortage impacting the interbank market.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:81419
Publisher:Wiley-Blackwell

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation