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Payment system disruptions and the federal reserve following September 11, 2001

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  • Lacker, Jeffrey M.

Abstract

The monetary and payment system consequences of the September 11, 2001, terrorist attacks are reviewed and compared to selected U.S. banking crises. Interbank payment disruptions appear to be the central feature of all the crises reviewed. For some the initial trigger is a credit shock, while for others the initial shock is technological and operational, as in September 11, but for both types the payments system effects are similar. For various reasons, interbank payment disruptions appear likely to recur. Federal Reserve credit extension following September 11 succeeded in massively increasing the supply of banks’ balances to satisfy the disruption-induced increase in demand and thereby ameliorate the effects of the shock. Relatively benign banking conditions helped make Fed credit policy manageable. An interbank payment disruption that coincided with less favorable banking conditions could be more difficult to manage, given current daylight credit policies.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 51 (2004)
Issue (Month): 5 (July)
Pages: 935-965

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Handle: RePEc:eee:moneco:v:51:y:2004:i:5:p:935-965

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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Cited by:
  1. Xavier Freixas, 2009. "Monetary policy in a systemic crisis," Economics Working Papers 1200, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Klee, Elizabeth, 2010. "Operational outages and aggregate uncertainty in the federal funds market," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2386-2402, October.
  3. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
  4. Stephen Williamson, 2004. "Search, Limited Participation, and Monetary Policy," 2004 Meeting Papers 214, Society for Economic Dynamics.
  5. Kei Imakubo & Yutaka Soejima, 2010. "The Microstructure of Japanfs Interbank Money Market: Simulating Contagion of Intraday Flow of Funds Using BOJ-NET Payment Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 151-180, November.
  6. Adam Ashcraft & Darrell Duffie, 2007. "Over the Counter Search Frictions: A Case Study of the Federal Funds Market," 2007 Meeting Papers 999, Society for Economic Dynamics.

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