Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Effectiveness of Central Bank Interventions During the First Phase of the Subprime Crisis

Contents:

Author Info

  • Heiko Hesse
  • Nathaniel Frank

Abstract

This paper provides evidence that central bank interventions had a statistically significant impact on easing stress in unsecured interbank markets during the first phase of the subprime crisis which began in July 2007. Extraordinary liquidity provisions, such as the Term Auction Facility by the Federal Reserve, are analyzed. First a decomposition of the Libor-OIS spread indicates that credit premia increased in importance as the crisis deepened. Second, using Markov switching models, central bank operations are then graphically associated with reductions in term funding stress. Finally, bivariate VAR and GARCH models are adopted to econometrically quantified these impacts. While helpful in compressing Libor spreads, the economic magnitudes of central interventions have overall not been very large.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=23305
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/206.

as in new window
Length: 28
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/206

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Bank credit; Banking sector; Central bank policy; Credit risk; Economic models; Liquidity management; Risk management; money markets; central bank; money market; discount rates; interbank money markets; financial institutions; monetary policy; monetary fund; reserve requirements; national bank; discount rate; financial markets; financial stability; open market operations; derivative; financial system; derivative contracts; money market funds; hedge; financial instruments; deposit insurance; hedge funds; monetary policy implications; moral hazard; discounting; government securities;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. International Monetary Fund, 2009. "How to Stop a Herd of Running Bears? Market Response to Policy Initiatives During the Global Financial Crisis," IMF Working Papers 09/204, International Monetary Fund.
  2. Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, Elsevier, vol. 87(1), pages 162-177.
  3. John B. Taylor & John C. Williams, 2008. "A Black Swan in the Money Market," NBER Working Papers 13943, National Bureau of Economic Research, Inc.
  4. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  5. François-Louis Michaud & Christian Upper, 2008. "What drives interbank rates? Evidence from the Libor panel," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, March.
  6. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 64(1-2), pages 307-333.
  7. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 401-19, June.
  8. Heiko Hesse & Nathaniel Frank & Brenda González-Hermosillo, 2008. "Transmission of Liquidity Shocks," IMF Working Papers 08/200, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Carlos Carvalho & Stefano Eusepi & Christian Grisser, 2012. "Iniciativas de política durante la recesión global. ¿Cuáles eran las expectativas de los analistas?," Boletín, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 78-93, Abril-jun.
  2. Claudio Morana, 2013. "Factor Vector Autoregressive Estimation of Heteroskedastic Persistent and Non Persistent Processes Subject to Structural Breaks: New Insights on the US OIS SPreads Term Structure," Working Papers, University of Milano-Bicocca, Department of Economics 233, University of Milano-Bicocca, Department of Economics, revised Feb 2013.
  3. Carpenter, Seth & Demiralp, Selva & Eisenschmidt, Jens, 2014. "The effectiveness of non-standard monetary policy in addressing liquidity risk during the financial crisis: The experiences of the Federal Reserve and the European Central Bank," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 43(C), pages 107-129.
  4. Mark Carney, 2012. "Un marco de política monetaria para todas las estaciones," Boletín, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 69-77, Abril-jun.
  5. Seth B. Carpenter & Selva Demiralp & Jens Eisenschmidt, 2013. "The effectiveness of the non-standard policy measures during the financial crises: the experiences of the Federal Reserve and the European Central Bank," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2013-34, Board of Governors of the Federal Reserve System (U.S.).
  6. Christiaan Pattipeilohy & Jan Willem van den End & Mostafa Tabbae & Jon Frost & Jakob de Haan, 2013. "Unconventional monetary policy of the ECB during the financial crisis: An assessment and new evidence," DNB Working Papers, Netherlands Central Bank, Research Department 381, Netherlands Central Bank, Research Department.
  7. Jonathan D. Ostry & Atish R. Ghosh & Marcos Chamon, 2012. "Dos objetivos, dos instrumentos: políticas monetaria y cambiaria en economías de mercados emergentes," Boletín, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 94-114, Abril-jun.
  8. Gerlach, Petra, 2013. "Euro area CDS spreads in the crisis: The role of open market operations and contagion," Papers, Economic and Social Research Institute (ESRI) WP449, Economic and Social Research Institute (ESRI).
  9. Alan M. Rai, 2013. "The Impact of Policy Initiatives on Credit Spreads during the 2007-09 Financial Crisis," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 45-104, March.
  10. International Monetary Fund, 2009. "How to Stop a Herd of Running Bears? Market Response to Policy Initiatives During the Global Financial Crisis," IMF Working Papers 09/204, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:09/206. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.