NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Market-specific and Currency-specific Risk During the Global Financial Crisis: Evidence from the Interbank Markets in Tokyo and London

Shin-ichi Fukuda

NBER Working Paper No. 16962
Issued in April 2011
NBER Program(s):   IFM

This paper explores how international money markets reflected credit and liquidity risks during the global financial crisis. After matching the currency denomination, we investigate how the Tokyo Interbank Offered Rate (TIBOR) was synchronized with the London Interbank Offered Rate (LIBOR) denominated in the US dollar and the Japanese yen. Regardless of the currency denomination, TIBOR was highly synchronized with LIBOR in tranquil periods. However, the interbank rates showed substantial deviations in turbulent periods. We find remarkable asymmetric responses in reflecting market-specific and currency-specific risks during the crisis. The regression results suggest that counter-party credit risk increased the difference across the markets, while liquidity risk caused the difference across the currency denominations. They also support the view that a shortage of US dollar as liquidity distorted the international money markets during the crisis. We find that coordinated central bank liquidity provisions were useful in reducing liquidity risk in the US dollar transactions. But their effectiveness was asymmetric across the markets.

download in pdf format
   (323 K)

email paper

This paper is available as PDF (323 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16962

Users who downloaded this paper also downloaded these:
Eichengreen, Park, and Shin w16919 When Fast Growing Economies Slow Down: International Evidence and Implications for China
Puri, Rocholl, and Steffen w16967 Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects
Taylor and Williams w13943 A Black Swan in the Money Market
Schwert w16976 Stock Volatility During the Recent Financial Crisis
Bronchetti, Dee, Huffman, and Magenheim w16887 When a Nudge Isn’t Enough: Defaults and Saving Among Low-Income Tax Filers
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us