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

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  • John V. Duca

Abstract

This paper analyzes how risk premia—and other factors affecting the comparative advantages of security-funded versus deposit-funded short-run debt—altered the relative use of debt funded by securities markets since the early-1960s and the relative use of commercial paper during the recent financial crisis. Results indicate that lower risk premia, higher information costs, and reserve requirement costs induce less relative use of commercial paper and short-run debt funded by securities markets. 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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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1101.

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Date of creation: 2011
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Handle: RePEc:fip:feddwp:1101

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Keywords: Financial markets ; Economic conditions - United States ; Commercial paper;

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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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