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Network Dependence in the Euro Area Money Market

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  • Rünstler, Gerhard

Abstract

I estimate network dependence effects in the euro area unsecured overnight interbank market during the ?financial crisis. I use linear spatial regressions to estimate the dependence of individual banks?trading volumes (and interest rates) on the trading volumes (and interest rates) of their network neighbours. Neighbours are de?fined from past trading relations. I ?find that banks?net lending volumes and lending-borrowing interest rate spread depend negatively on their neighbours? respective outcomes. By contrast, there arise positive effects for total trading volume and borrowing rates. Overall, however, these effects are small and signi?ficant only in periods of market turmoil or of major policy interventions. The results suggest that neighbours act as a buffer in absorbing idiosyncratic liquidity shocks. JEL Classification: C21, E42

Suggested Citation

  • Rünstler, Gerhard, 2016. "Network Dependence in the Euro Area Money Market," Working Paper Series 1887, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20161887
    Note: 339116
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    References listed on IDEAS

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    Cited by:

    1. Morteza Alaeddini & Philippe Madiès & Paul J. Reaidy & Julie Dugdale, 2023. "Interbank money market concerns and actors’ strategies—A systematic review of 21st century literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 573-654, April.

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    More about this item

    Keywords

    euro area money markets; financial crisis; network analysis; spatial regressions;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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