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Crisis and Responses: the Federal Reserve and the Financial Crisis of 2007-2008

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  • Stephen G. Cecchetti

Abstract

Realizing that their traditional instruments were inadequate for responding to the crisis that began on 9 August 2007, Federal Reserve officials improvised. Beginning in mid-December 2007, they implemented a series of changes directed at ensuring that liquidity would be distributed to those institutions that needed it most. Conceptually, this meant America's central bankers shifted from focusing solely on the size of their balance sheet, which they use to keep the overnight interbank lending rate close to their chosen target, to manipulating the composition of their assets as well. In this paper, I examine the Federal Reserve's conventional and unconventional responses to the financial crisis of 2007-2008.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14134.

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Date of creation: Jun 2008
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Publication status: published as Stephen G. Cecchetti, 2009. "Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 51-75, Winter.
Handle: RePEc:nbr:nberwo:14134

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  1. Selva Demiralp & Erhan Artuç, 2007. "Discount Window Borrowing after 2003: The Explicit Reduction in Implicit Costs," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 0708, Koc University-TUSIAD Economic Research Forum.
  2. John C. Williams & John B. Taylor, 2009. "A Black Swan in the Money Market," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 1(1), pages 58-83, January.
  3. James McAndrews & Asani Sarkar & Zhenyu Wang, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports, Federal Reserve Bank of New York 335, Federal Reserve Bank of New York.
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Cited by:
  1. Christiano, Lawrence & Rostagno, Massimo & Motto, Roberto, 2010. "Financial factors in economic fluctuations," Working Paper Series, European Central Bank 1192, European Central Bank.
  2. Christian Calmès & Raymond Théoret, 2009. "The Impact of Off-Balance-Sheet Activities on Banks Returns: An Application of the ARCH-M to Canadian Data," RePAd Working Paper Series, Département des sciences administratives, UQO UQO-DSA-wp032009, Département des sciences administratives, UQO.
  3. Lagos, Ricardo & Rocheteau, Guillaume & Weill, Pierre-Olivier, 2011. "Crises and liquidity in over-the-counter markets," Journal of Economic Theory, Elsevier, Elsevier, vol. 146(6), pages 2169-2205.
  4. Ulrich van Suntum, . "Economic Confidence, Negative Interest Rates, and Liquidity: Towards Keynesianism 2.0," Working Papers, Institute of Spatial and Housing Economics, Munster Universitary 200108, Institute of Spatial and Housing Economics, Munster Universitary.
  5. Spence Hilton & James McAndrews, 2011. "Challenges and lessons of the Federal Reserve's monetary policy operations during the financial crisis," Chapters, European Central Bank, European Central Bank.
  6. van Suntum, Ulrich, 2009. "Economic confidence, negative interest rates, and liquidity: Towards Keynesianism 2.0," CAWM Discussion Papers 24, Center of Applied Economic Research Münster (CAWM), University of Münster.
  7. Etienne B. Yehoue, 2009. "Emerging Economy Responses to the Global Financial Crisis of 2007-20+L427209," IMF Working Papers 09/265, International Monetary Fund.
  8. Ben Cohen & Eli Remolona, 2008. "The Unfolding Turmoil of 2007–2008: Lessons and Responses," RBA Annual Conference Volume, Reserve Bank of Australia, in: Paul Bloxham & Christopher Kent (ed.), Lessons from the Financial Turmoil of 2007 and 2008 Reserve Bank of Australia.
  9. Christian Calmès & Raymond Théoret, 2009. "The Impact of Banking Deregulation on Canadian Banks Returns," RePAd Working Paper Series, Département des sciences administratives, UQO UQO-DSA-wp022009, Département des sciences administratives, UQO.
  10. Mohammed Dore & Rajiv Singh, 2012. "The Role of Credit in the 2007–09 Great Recession," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 40(3), pages 295-313, September.
  11. Christian Calmès & Raymond Théoret, 2008. "Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ?," RePAd Working Paper Series, Département des sciences administratives, UQO UQO-DSA-wp042008, Département des sciences administratives, UQO.
  12. Cordelius Ilgmann & Ulrich van Suntum, . "Bad Banks: The Case of Germany," Working Papers, Institute of Spatial and Housing Economics, Munster Universitary 200110, Institute of Spatial and Housing Economics, Munster Universitary.
  13. Peter Hördahl & Michael R King, 2008. "Developments in repo markets during the financial turmoil," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, December.

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