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Market-specific and currency-specific risk during the global financial crisis: Evidence from the interbank markets in Tokyo and London

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  • Fukuda, Shin-ichi
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    Abstract

    This paper investigates how international money markets reflected credit and liquidity risk during the global financial crisis. After matching the currency denomination, we examine how the Tokyo Interbank Offered Rate (TIBOR) was synchronized with the London Interbank Offered Rate (LIBOR). We find remarkably asymmetric responses in market-specific and currency-specific risk during the crisis. The regression results suggest that market-specific credit risk increased the difference across markets, whereas liquidity risk caused the difference across currency denominations. They also support the view that liquidity shortage of the US dollar occurred in international money markets during the crisis. Coordinated central bank liquidity provisions were useful in reducing the liquidity shortage of the US dollar, but their effectiveness was asymmetric across markets.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 12 ()
    Pages: 3185-3196

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:12:p:3185-3196

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Credit risk; Liquidity risk; Interbank market; Global financial crisis;

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    References

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    1. Aizenman, Joshua & Pasricha, Gurnain Kaur, 2010. "Selective swap arrangements and the global financial crisis: Analysis and interpretation," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 353-365, June.
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    Cited by:
    1. Silvio Contessi & Pierangelo De Pace & Massimo Guidolin, 2013. "How did the financial crisis alter the correlations of U.S. yield spreads?," Working Papers 2013-005, Federal Reserve Bank of St. Louis.
    2. Shin-ichi Fukuda & Mariko Tanaka, 2013. "Financial Crises and Risk Premiums in International Interbank Markets," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 117-138, January.

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