In a forthcoming paper at the International Review of Financial Analysis, my co-authors and I document how interbank credit risk transmits from the US to five important emerging countries: Brazil, Russia, India, China, and South Africa. We achieve this by creating synthetic spreads representing funding liquidity risk and estimate a Bayesian model with time-varying parameters on daily data covering the bulk of the Global Financial Crisis, European Sovereign Debt Crisis, and the Covid-19 pandemic.

Key Findings

First, global policy indicators are weakly associated with interbank credit market situations in BRICS economies. Instead, the state of US financial system matters more. This finding derives from the overwhelmingly significant results stemming from Chicago Fed’s NFCI indicator, which has a reputation for a leading indicator of US economic activities.

Second, our results’ temporal patterns imply that key central banking decisions precede or coincide with reduced spillover.

Third, we further examine whether interbank credit crunch depresses market liquidity in the corresponding domestic markets using a Granger causality approach. The results indicate that it often does, and the augmented conditional causality analysis shows that the state of fear and credit market conditions in the US economy holds some causal influence on the aforesaid relationship.

The published version of the paper is linked below:

If you require an author’s copy PDF, do send me an e-mail. Alternatively, you can check an earlier version on SSRN or Researchgate.


Imtiaz Sifat (Radboud University), Alireza Zarei (Coventry University), Seyed Hosseini (Cardiff University), and Elie Bouri (Lebanese American University)