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Further Results on a Black Swan in the Money Market

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  • John Taylor

    ()
    (Department of Economics, Stanford University)

  • John Williams

    (Federal Reserve Bank of San Fransisco)

Abstract

Using alternative measures of term lending rates and counterparty risk and a wide variety of econometric specifications, we find that counterparty risk has a robust significant effect on interest rate spreads in the term inter-bank loan markets. In contrast, we do not find comparably robust evidence of significant negative effects of the Fed’s term auction facility (TAF) on term lending rates. This analysis incorporates the latest data from the ongoing turmoil in the money markets and confirms earlier findings reported in Taylor and Williams (2008).

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Bibliographic Info

Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-046.

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Date of creation: May 2008
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Handle: RePEc:sip:dpaper:07-046

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Keywords: interest rate spreads; counterparty risk; inter-bank loan market;

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  1. John B. Taylor & John C. Williams, 2008. "A black swan in the money market," Working Paper Series 2008-04, Federal Reserve Bank of San Francisco.
  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. William C. Dudley, 2008. "May you live in interesting times: the sequel," Proceedings 1071, Federal Reserve Bank of Chicago.
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