A dynamic network model of the unsecured interbank lending market

We introduce a dynamic network model of interbank lending and estimate the parameters by indirect inference using network statistics of the Dutch interbank market from February 2008 to April 2011. We find that credit-risk uncertainty and peer monitoring are significant factors in explaining the spar...

Full description

Saved in:
Bibliographic Details
Published in:Journal of economic dynamics & control 2018-05, Vol.90, p.310-342
Main Authors: Blasques, Francisco, Bräuning, Falk, Lelyveld, Iman van
Format: Article
Language:English
Subjects:
Credit-risk uncertainty
Financial networks
Indirect inference estimation
Interbank liquidity
Monitoring
Trading relationships
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We introduce a dynamic network model of interbank lending and estimate the parameters by indirect inference using network statistics of the Dutch interbank market from February 2008 to April 2011. We find that credit-risk uncertainty and peer monitoring are significant factors in explaining the sparse core-periphery structure of the market and the presence of relationship lending. Shocks to credit-risk uncertainty lead to extended periods of low market activity, intensified by reduced peer monitoring. Moreover, changes in the central bank’s interest rate corridor have both a direct effect on the market as well as an indirect effect by changing banks’ monitoring efforts.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2018.03.015