The Three Sources of Risk Premia in Ukrainian Inter-Bank Markets
Patrick J. Conway
University of North Carolina (UNC) at Chapel Hill - Department of Economics
February 12, 2006
Despite its adoption of a nominal-anchor exchange-rate policy during the period 1999-2005, Ukrainian financial markets were subject to substantial premia in interest rates on inter-bank markets relative to what is observed in Euro credit markets. In this paper I demonstrate that there were three sources of this risk premium, and that these sources had different causes. Estimation using weekly data over the period 1999-2005 illustrates that the government's nominal anchor policy vis a vis the US dollar was effective at eliminating the risk of currency depreciation. However, other risks of convertibility and liquidity were either not addressed or exacerbated. Future monetary and financial-sector policy should be calibrated to address all three to avoid the financial crises that have affected other emerging economies.
Number of Pages in PDF File: 36
Keywords: Ukraine, risk, risk premium, interbank credit
JEL Classification: E43, F31, F36working papers series
Date posted: February 24, 2006
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