%0 Journal Article %A Naohiko Baba %T Dynamic Spillover of Money Market Turmoil from FX Swap to Cross-Currency Swap Markets: Evidence from the 2007–2008 Turmoil %D 2009 %R 10.3905/JFI.2009.18.4.024 %J The Journal of Fixed Income %P 24-38 %V 18 %N 4 %X This paper investigates the dynamic spillover of 2007–08 money market turmoil from short-term FX swap to the longer-term cross-currency swap markets. Under the turmoil, the short-term covered parity (CIP) deviation (FX swap deviation) and long-term CIP deviation (cross-currency swap price) are significantly in a one-on-one cointegrating relationship. The Granger test shows a significant causality from the short-term to long-term deviation. The bivariate GARCH model reveals a significant volatility spillover in the same direction and a substantial shift-up in conditional correlation. The principal component analysis shows that these deviations are driven largely by the factors that characterize the money market turmoil.TOPICS: Interest-rate and currency swaps, financial crises and financial market history, statistical methods, volatility measures %U https://jfi.pm-research.com/content/iijfixinc/18/4/24.full.pdf