Deciphering the Libor and Euribor Spreads During the Subprime Crisis

North American Journal of Economics and Finance 26 (2013) 565– 585

21 Pages Posted: 9 Jul 2013 Last revised: 23 Feb 2024

See all articles by Loriana Pelizzon

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice - Dipartimento di Economia

Domenico Sartore

Ca Foscari University of Venice - Dipartimento di Economia

Date Written: December 2, 2013

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.

Keywords: Subprime Crisis, Collateral Liquidity, Unconventional Monetary Policy

JEL Classification: C01, C22, E58, G01, G15, G21

Suggested Citation

Pelizzon, Loriana and Sartore, Domenico, Deciphering the Libor and Euribor Spreads During the Subprime Crisis (December 2, 2013). North American Journal of Economics and Finance 26 (2013) 565– 585, Available at SSRN: https://ssrn.com/abstract=2290960 or http://dx.doi.org/10.2139/ssrn.2290960

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Domenico Sartore

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

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