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The International Liquidity Crisis of 2008–2009

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  • William A. Allen
  • Dr Richhild Moessner
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    Abstract

    The ‘credit crunch’ that began in August 2007 turned into a crisis when Lehman Brothers failed in September 2008. That event caused large international capital flows, including heavy repatriation of dollars to the United States. Central banks, led by the Federal Reserve, augmented the supply of international liquidity through bilateral central bank swap facilities, and thereby prevented the crisis from becoming much worse. We discuss the reasons for establishing swap facilities, the risks that central banks run in extending swap lines and the limitations to their utility in relieving liquidity pressures. We conclude that the credit crisis is likely to have a lasting effect on the international liquidity policies of governments and central banks.

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    Bibliographic Info

    Article provided by World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE in its journal World Economics Journal.

    Volume (Year): 12 (2011)
    Issue (Month): 2 (April)
    Pages: 183-198

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    Handle: RePEc:wej:wldecn:477

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    Cited by:
    1. William A Allen & Richhild Moessner, 2012. "The liquidity consequences of the euro area sovereign debt crisis," BIS Working Papers 390, Bank for International Settlements.

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