Short-term liquidity contagion in the interbank market

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Abstract

We implement a modified version of DebtRank to recursively measure the contagion effects caused by the default of a selected financial institution. For this paper, contagion is a liquidity issue that is measured as the decrease in financial institutions' short-term liquidity position across the Colombian interbank network. We find that contagion negative effects are concentrated in a few financial institutions. However, as most of their impact is conditional on the occurrence of unlikely major widespread illiquidity events, and due to the subsidiary contribution of the interbank market to the local money market, their overall systemic importance is still to be confirmed.

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León, C., Martínez, C., & Cepeda, F. (2019). Short-term liquidity contagion in the interbank market. Cuadernos de Economia (Colombia), 38(76), 51–80. https://doi.org/10.15446/cuad.econ.v37n76.55758

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