Suchergebnisse

This paper discusses whether financial intermediaries can optimally provide liquidity, or whether the government has a role in creating liquidity by supplying government securities. We discuss a model in which intermediaries optimally manage liquidity with outside rather than inside liquidity: instead of holding liquid real assets that can be used at will, banks sell claims on long-term projects to investors. While increasing efficiency, liquidity management with private outside liquidity is associated with a rollover risk. This rollover risk either keeps intermediaries from providing liquidity optimally, or it makes the economy inherently fragile. In contrast to privately produced claims, government bonds are not associated with coordination problems unless there is the prospect that the government may default. Therefore, efficiency and stability can be enhanced if liquidity management relies on public outside liquidity.

In this paper we investigate the dynamics of European government bond market contagion during the financial crisis and, subsequently, during the European sovereign debt crisis. Following Bae et al. (2003), we use the coexceedance variable joint occurrences of extreme negative and positive returns in different countries on a given day to measure contagion. We also analyze the underlying determinants of the dynamics of contagion using an ordered logistic regression. Our results reveal that interest rates, stock market returns and market volatility help explain contagion in European government bond markets; however, their individual relevance varies from crisis to crisis. We also find that past contagion significantly increases the probability of more episodes of contagion today. Finally, we find statistically significant evidence of contagion from the "old" European Monetary Union (EMU) members to the new members during the sovereign debt crisis and to the non-EMU EU-15 members during both crises. Interestingly, our results show that the new members are those that behave most differently in our analysis.