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Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis

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  • Stephen G. Cecchetti

Abstract

Realizing that their traditional instruments were inadequate for responding to the crisis that began on August 9, 2007, Federal Reserve officials improvised. Beginning in mid-December 2007, they implemented a series of changes directed at ensuring that liquidity would be distributed to those institutions that needed it most. Conceptually, this meant America's central bankers shifted from focusing solely on the size of their balance sheet, which they use to keep the overnight interbank lending rate close to their chosen target, to manipulating the composition of their assets as well. In this paper, I examine the Federal Reserve's conventional and unconventional responses to the financial crisis of 2007-2008.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.1.51
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 23 (2009)
Issue (Month): 1 (Winter)
Pages: 51-75

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Handle: RePEc:aea:jecper:v:23:y:2009:i:1:p:51-75

Note: DOI: 10.1257/jep.23.1.51
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  1. John C. Williams & John B. Taylor, 2009. "A Black Swan in the Money Market," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 58-83, January.
  2. Selva Demiralp & Erhan Artuç, 2007. "Discount Window Borrowing after 2003: The Explicit Reduction in Implicit Costs," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 0708, Koc University-TUSIAD Economic Research Forum.
  3. James McAndrews & Asani Sarkar & Zhenyu Wang, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports, Federal Reserve Bank of New York 335, Federal Reserve Bank of New York.
  4. Fleming, Michael J. & Garbade, Kenneth D., 2007. "Dealer behavior in the specials market for US Treasury securities," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 16(2), pages 204-228, April.
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