On the Time-varying Linkages among the London Interbank Offer Rates for Major European Currencies

Abstract

We employ an asymmetric dynamic conditional correlation model to investigate the time-varying integration of the London Interbank Offered Rate (LIBOR) rates for three major European currencies ‒the euro (EUR), Swiss franc (CHF), and British pound (GBP). We assess the impacts of the global financial crisis and the European sovereign debt crisis on cross-currency dynamic correlations. Our findings suggest that the correlations are influenced more by negative innovations than by positive ones for the GBP-CHF and CHF-EUR pairs. While the global financial crisis increased the degree of interbank money market integration, the European debt crisis contrastingly decreased the dynamic correlations for each pair of LIBOR rates.