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Did the commercial paper funding facility prevent a Great Depression style money market meltdown?

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  • Duca, John V.

Abstract

This paper analyzes how risk premiums altered the use of commercial paper relative to bank loans during the recent financial crisis. Consistent with the theoretical and empirical literature on how surges in risk premiums can induce plunges in under-collateralized credit or credit funded with noninsured sources, results indicate that a spike in risk premiums induced a plunge in commercial paper use during the recent crisis. This paper also finds that Federal Reserve interventions in the money market helped prevent the commercial paper market from melting down to the extent seen during the early 1930s.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 9 (2013)
Issue (Month): 4 ()
Pages: 747-758

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Handle: RePEc:eee:finsta:v:9:y:2013:i:4:p:747-758

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Web page: http://www.elsevier.com/locate/jfstabil

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Keywords: Great Depression; Commercial paper; Financial frictions; Credit rationing;

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Cited by:
  1. Duca, John V., 2014. "What drives the shadow banking system in the short and long run?," Working Papers 1401, Federal Reserve Bank of Dallas.
  2. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.

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