There Is No smoke without the Fire - The Effect of Government Interventions in the Emerging Countries

Abstract

We examine the shock of the global crisis on interbank markets in emerging countries and attempt to assess the impact of macroeconomic and financial sector policy announcements on spread changes in six Central and Eastern European (CEE) countries. We find that interbank markets in emerging countries have reacted to the global events of 2007-2011; however, the policy initiatives have not been successful in stabilizing the situation. In particular, we show that the actions of central banks have not been effective when liquidity is not a concern. Instead, financial sector policy instruments seem to work better. The weak evidence on international interventions demonstrates their important impact on the stability of interbank markets. Regulators in emerging countries should introduce new instruments for interbank markets where liquidity is not a concern.

Keywords: : financial crisis, interbank market, interventions, policy announcements, event study

JEL Classification: G01, G14, G15, G18, E65, E63