Faculty of Economics and Business Administration Publications Database

Deciphering the Libor and Euribor Spreads during the subprime crisis

Authors:
Sartore, Domenico
Source:
Volume: 26
Pages: 565 - 585
Month: December
ISSN-Print: 1062-9408
Link External Source: Online Version
Year: 2013
Keywords: Subprime crisis; Collateral; Liquidity; Unconventional monetary policy
Abstract: This paper investigates the key role played by different factors, such as the use of Asset Backed Commercial Paper as collaterals in the short-term debt market, credit risk and the injection of liquidity by Central Banks through so-called unconventional measures, on the persistent spread during the subprime crisis bet. The empirical analysis shows that, in addition to credit risk, a relevant variable for explaining the interbank rate dynamics is the outstanding volume in the Asset Backed Commercial Paper market. In short, the large spread observed in the market is explained by the inter-relationship between collateralized short-term debt markets and the unsecured interbank market. It is also shown that Central Bank ⿿non-conventional⿿ intervention variables are relevant in affecting the spread both in the long-run but mostly in the short-run.
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