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Did the Commercial Paper Funding Facility Prevent a Great Depression Style Money Market Meltdown?

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  • Duca, John V.

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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29255.

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Date of creation: 04 Nov 2010
Date of revision: 22 Feb 2011
Handle: RePEc:pra:mprapa:29255

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Keywords: Great Depression; Commercial Paper; Financial Frictions; Credit Rationing;

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Cited by:
  1. 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.
  2. Duca, John V., 2014. "What drives the shadow banking system in the short and long run?," Working Papers 1401, Federal Reserve Bank of Dallas.

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