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Provision of Liquidity through the Primary Credit Facility during the Financial Crisis: A Structural Analysis

Author

Listed:
  • Erhan Artuç

    (Koc University)

  • Selva Demiralp

    (Koc University)

Abstract

Over the course of the recent liquidity crisis, the Federal Reserve made several changes to its primary credit lending facility such as narrowing the spread between the primary credit rate and the target funds rate and increasing the term of the borrowing. In this paper, we use the model developed by Artuç and Demiralp (2008) to provide a structural assessment of the effectiveness of these changes. Our results suggest that these changes were effective in stabilizing the federal funds market.

Suggested Citation

  • Erhan Artuç & Selva Demiralp, 2009. "Provision of Liquidity through the Primary Credit Facility during the Financial Crisis: A Structural Analysis," Koç University-TUSIAD Economic Research Forum Working Papers 0912, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:0912
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    References listed on IDEAS

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    1. Artuç, Erhan & Demiralp, Selva, 2010. "Discount window borrowing after 2003: The explicit reduction in implicit costs," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 825-833, April.
    2. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages 63-84, Suppl. De.
    3. Dow, James Jr., 2001. "The Recent Behavior of Adjustment Credit at the Discount Window," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 199-211, April.
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    Cited by:

    1. 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, vol. 87(1), pages 162-177.
    2. Mauricio Calani & Kevin Cowan & Pablo García S., 2011. "Inflation Targeting in Financially Stable Economies: Has it Been Flexible Enough?," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.),Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 1, pages 283-368, Central Bank of Chile.
    3. Kotaro Ishi & Mr. Kenji Fujita & Mr. Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far," IMF Working Papers 2011/145, International Monetary Fund.
    4. Mr. Mark R. Stone & Mr. Etienne B Yehoue & Kotaro Ishi, 2009. "Unconventional Central Bank Measures for Emerging Economies," IMF Working Papers 2009/226, International Monetary Fund.
    5. Ayoki, Milton, 2010. "Response of the Financial Markets to the European Central Bank’s Policy Announcements during the Subprime and Global Financial Crisis," MPRA Paper 78846, University Library of Munich, Germany.
    6. Elizabeth C. Klee, 2011. "The first line of defense: the discount window during the early stages of the financial crisis," Finance and Economics Discussion Series 2011-23, Board of Governors of the Federal Reserve System (U.S.).
    7. Glocker, Christian & Url, Thomas, 2022. "Financial sector rescue programs: Domestic and cross border effects," Journal of International Money and Finance, Elsevier, vol. 127(C).
    8. Marcus Scheiblecker & Christian Glocker & Serguei Kaniovski & Atanas Pekanov, 2018. "Der Beitrag der Finanzmarktinterventionen des Bundes über die HETA Abwicklungsgesellschaft zur Stabilisierung des österreichischen Finanzmarktes," WIFO Studies, WIFO, number 60979, April.
    9. Metrick, Andrew, 2020. "The Federal Reserve's Financial Crisis Response A: Lending & Credit Programs for Depository Institutions," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 2(2), pages 34-66, April.

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    More about this item

    Keywords

    Discount Window; Primary Credit; Federal Funds Market;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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