“Black Swans” before the “Black Swan” evidence from international LIBOR–OIS spreads
The LIBOR–OIS spread is a closely monitored indicator of the financial health of economy. Previous research has used this spread to identify and anticipate abrupt changes in financial markets. Taylor and Williams (2009) refer to the drastic increase in the US LIBOR–OIS spread on August 7th, 2007 as a “Black Swan” in the money market. In this paper, rather than rely on visual observations of “Black Swans” we estimate them using Bai and Perron’s (1998) procedure. We estimate structural breaks, Granger causality tests, and innovation accounting in international LIBOR–OIS spreads and a CDS index to better understand their dynamics during the recent crisis. Our results reveal that “Black Swans” appeared in smaller economies prior to that in large ones during the financial crisis. In addition, we find that only shocks to the US LIBOR–OIS spread has any statistically significant effects after 30 days.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 31 (2012)
Issue (Month): 6 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/30443|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aizenman, Joshua & Pasricha, Gurnain, 2009.
"Selective Swap Arrangements and the Global Financial Crisis: Analysis and Interpretation,"
Santa Cruz Department of Economics, Working Paper Series
qt2vw7s14s, Department of Economics, UC Santa Cruz.
- 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.
- Joshua Aizenman & Gurnain Kaur Pasricha, 2009. "Selective Swap Arrangements and the Global Financial Crisis: Analysis and Interpretation," NBER Working Papers 14821, National Bureau of Economic Research, Inc.
- Rajdeep Sengupta & Yu Man Tam, 2008. "The LIBOR-OIS spread as a summary indicator," Monetary Trends, Federal Reserve Bank of St. Louis, issue Nov.
- John B. Taylor & John C. Williams, 2009.
"A black swan in the money market,"
Federal Reserve Bank of San Francisco, issue Jan.
- Nathaniel Frank & Heiko Hesse, 2009. "Financial Spillovers to Emerging Markets during the Global Financial Crisis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 507-521, December.
- Boschen, John F & Smith, Kimberly J, 1995. "You Can Pay Me Now and You Can Pay Me Later: The Dynamic Response of Executive Compensation to Firm Performance," The Journal of Business, University of Chicago Press, vol. 68(4), pages 577-608, October.
- Perron, P. & Bai, J., 1995.
"Estimating and Testing Linear Models with Multiple Structural Changes,"
Cahiers de recherche
9552, Universite de Montreal, Departement de sciences economiques.
- Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Daniel L. Thornton, 2009. "What the Libor-OIS spread says," Economic Synopses, Federal Reserve Bank of St. Louis.
- McAndrews, James J. & Sarkar, Asani & Wang, Zhenyu, 2008. "The effect of the Term Auction Facility on the London inter-bank offered rate," Staff Reports 335, Federal Reserve Bank of New York, revised 01 Sep 2015.
- Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
- John Taylor & John Williams, 2008. "Further Results on a Black Swan in the Money Market," Discussion Papers 07-046, Stanford Institute for Economic Policy Research.
- Morgan, Donald P, 1998. "The Credit Effects of Monetary Policy: Evidence Using Loan Commitments," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 102-118, February.
- Ji, Philip Inyeob & In, Francis, 2010. "The impact of the global financial crisis on the cross-currency linkage of LIBOR-OIS spreads," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 575-589, December.
- Nathaniel Frank & Heiko Hesse, 2009. "Financial Spillovers to Emerging Markets During the Global Financial Crisis," IMF Working Papers 09/104, International Monetary Fund.
- Hafner, Christian M. & Herwartz, Helmut, 2006. "A Lagrange multiplier test for causality in variance," Economics Letters, Elsevier, vol. 93(1), pages 137-141, October.
- Caporale, Tony & Grier, Kevin B, 2000. "Political Regime Change and the Real Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 320-334, August.
- Jushan Bai & Pierre Perron, 2003.
"Computation and analysis of multiple structural change models,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
- Tom Doan, "undated". "RATS programs to replicate examples of Bai-Perron procedure," Statistical Software Components RTZ00008, Boston College Department of Economics.
- Tom Doan, "undated". "BAIPERRON: RATS procedure to perform Bai-Perron Test for Multiple Structural Changes," Statistical Software Components RTS00013, Boston College Department of Economics.
- Tom Doan, "undated". "MULTIPLEBREAKS: RATS procedure to perform multiple structural change analysis," Statistical Software Components RTS00138, Boston College Department of Economics.
- BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
- Alexander W. Hoffmaister & Jorge E. RoldÃ³s & Peter Wickham, 1998. "Macroeconomic Fluctuations in Sub-Saharan Africa," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 132-160, March.
- Krehbiel, Tim & Adkins, Lee C., 2008. "Extreme daily changes in U.S. Dollar London inter-bank offer rates," International Review of Economics & Finance, Elsevier, vol. 17(3), pages 397-411.
- Michael J. Fleming & Nicholas Klagge, 2010. "The Federal Reserve's foreign exchange swap lines," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Apr).
- Rapach, David E & Wohar, Mark E, 2005. "Regime Changes in International Real Interest Rates: Are They a Monetary Phenomenon?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 887-906, October.
When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:31:y:2012:i:6:p:1339-1357. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.