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Short-Term Liquidity Contagion in the Interbank Market

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  • Carlos León

    ()

  • Constanza Martínez-Ventura

    ()

  • Freddy Cepeda-López

    ()

Abstract

We implement a modified version of DebtRank to recursively measure the contagion effects caused by the default of a selected financial institution. In our case contagion is a liquidity issue, measured as the decrease in financial institutions’ short-term liquidity position across the Colombian interbank network. We find that contagion negative effects are concentrated in a few financial institutions. However, as most of their impact is conditional on the occurrence of unlikely major widespread illiquidity events, and due to the subsidiary contribution of the interbank market to the local money market, their overall systemic importance is still to be confirmed. ***** Implementamos una versión modificada de DebtRank para medir de manera recursiva los efectos de contagio causados por la cesación de pagos de una institución financiera. En nuestro caso, el contagio es un problema de liquidez, medido como la caída en la liquidez de corto plazo de las instituciones en la red interbancaria colombiana. Encontramos que sus efectos negativos están concentrados en pocas instituciones. Pero como estos en su mayoría son condicionales a la ocurrencia de eventos improbables de iliquidez generalizada, y debido a la contribución subsidiaria del mercado interbancario al mercado monetario local, su importancia sistémica total está aún por confirmarse.

Suggested Citation

  • Carlos León & Constanza Martínez-Ventura & Freddy Cepeda-López, 2019. "Short-Term Liquidity Contagion in the Interbank Market," Revista Cuadernos de Economía, Universidad Nacional de Colombia -FCE - CID, vol. 38(76), pages 51-80, January.
  • Handle: RePEc:col:000093:017471
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    File URL: https://revistas.unal.edu.co/index.php/ceconomia/article/view/55758/70017
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    References listed on IDEAS

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    More about this item

    Keywords

    financial networks; contagion; default; liquidity; DebtRank; redes financieras; contagio; cesación de pagos; liquidez; DebtRank.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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