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Responses to the financial crisis, treasury debt, and the impact on short-term money markets

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  • Warren B. Hrung
  • Jason S. Seligman

Abstract

Several programs have been introduced by U.S. fiscal and monetary authorities in response to the financial crisis. We examine the responses involving Treasury debt—the Term Securities Lending Facility (TSLF), the Supplemental Financing Program, increases in Treasury issuance, and open market operations—and their impacts on the overnight Treasury general collateral repo rate, a key money market rate. Our contribution is to consider each policy in light of the others, both to help guide policy responses to future crises and to emphasize policy interactions. Only the TSLF was designed to directly address stresses in short-term money markets by temporarily changing the supply of Treasury collateral in the marketplace. We find that the TSLF is uniquely effective relative to other policies and that, while changes in Treasury collateral do affect repo rates, the impacts are not equivalent across sources of Treasury collateral.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 481.

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Date of creation: 2011
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Handle: RePEc:fip:fednsr:481

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Keywords: Treasury bonds ; Repurchase agreements ; Money market ; Open market operations;

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References

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  1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market Liquidity and Funding Liquidity," NBER Working Papers 12939, National Bureau of Economic Research, Inc.
  2. James McAndrews & Asani Sarkar & Zhenyu Wang, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports 335, Federal Reserve Bank of New York.
  3. Robin Greenwood & Dimitri Vayanos, 2008. "Bond Supply and Excess Bond Returns," NBER Working Papers 13806, National Bureau of Economic Research, Inc.
  4. Michael J. Fleming & Joshua V. Rosenberg, 2007. "How do treasury dealers manage their positions?," Staff Reports 299, Federal Reserve Bank of New York.
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  6. Friedman, Benjamin M. & Kuttner, Kenneth N., 2010. "Implementation of Monetary Policy: How Do Central Banks Set Interest Rates?," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 24, pages 1345-1438 Elsevier.
  7. Jordan, Bradford D & Jordan, Susan D, 1997. " Special Repo Rates: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 52(5), pages 2051-72, December.
  8. Seth Carpenter & Selva Demiralp, 2004. "The liquidity effect in the federal funds market: evidence from daily open market operations," Finance and Economics Discussion Series 2004-61, Board of Governors of the Federal Reserve System (U.S.).
  9. John B. Taylor & John C. Williams, 2008. "A Black Swan in the Money Market," NBER Working Papers 13943, National Bureau of Economic Research, Inc.
  10. Michael J. Fleming, 2007. "Who buys Treasury securities at auction?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 13(Jan).
  11. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
  12. Tobias Adrian & Karin Kimbrough & Dina Marchioni, 2011. "The Federal Reserve’s Commercial Paper Funding Facility," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 25-39.
  13. Fleming, Michael J. & Garbade, Kenneth D., 2007. "Dealer behavior in the specials market for US Treasury securities," Journal of Financial Intermediation, Elsevier, vol. 16(2), pages 204-228, April.
  14. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
  15. Seligman, Jason, 2006. "Does Urgency Affect Price at Market? An Analysis of U.S. Treasury Short-Term Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 989-1012, June.
  16. Spence Hilton & Warren B. Hrung, 2010. "The Impact of Banks’ Cumulative Reserve Position on Federal Funds Rate Behavior," International Journal of Central Banking, International Journal of Central Banking, vol. 6(3), pages 101-118, September.
  17. Michael J. Fleming & Kenneth D. Garbade, 2004. "Repurchase agreements with negative interest rates," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Apr).
  18. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  19. Michael J. Fleming & Nicholas J. Klagge, 2010. "The Federal Reserve's foreign exchange swap lines," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Apr).
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Citations

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Cited by:
  1. Gary Gorton & Andrew Metrick, 2012. "Securitization," NBER Working Papers 18611, National Bureau of Economic Research, Inc.
  2. Jérôme Creel & Mathilde Viennot & Paul Hubert, 2013. "Assessing the Interest Rate and Bank Lending Channels of ECB Monetary Policies," Sciences Po publications 2013-25, Sciences Po.
  3. Gary B. Gorton & Guillermo Ordoñez, 2013. "The Supply and Demand for Safe Assets," NBER Working Papers 18732, National Bureau of Economic Research, Inc.
  4. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p4sg18u8h is not listed on IDEAS
  5. Jagjit S Chadha & Philip Turner & Fabrizio Zampolli, 2013. "The interest rate effects of government debt maturity," BIS Working Papers 415, Bank for International Settlements.
  6. Gary Gorton & Andrew Metrick, 2013. "The Federal Reserve and Panic Prevention: The Roles of Financial Regulation and Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 45-64, Fall.
  7. 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.
  8. Paul J. Santoro, 2012. "The evolution of Treasury cash management during the financial crisis," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 18(Apr).
  9. Jeff W. Huther & Jason S. Seligman, 2013. "Yield curve impacts of forward guidance and maturity extension programs," Finance and Economics Discussion Series 2013-72, Board of Governors of the Federal Reserve System (U.S.).

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