When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007-2009
Commercial paper is a short-term debt instrument issued by large corporations. The commercial paper market has long been viewed as a bastion of high liquidity and low risk. But twice during the financial crisis of 2007-2009, the commercial paper market nearly dried up and ceased being perceived as a safe haven. Major interventions by the Federal Reserve, including large outright purchases of commercial paper, were eventually used to support both issuers of and investors in commercial paper. We will offer an analysis of the commercial paper market during the financial crisis. First, we describe the institutional background of the commercial paper market. Second, we analyze the supply and demand sides of the market. Third, we examine the most important developments during the crisis of 2007-2009. Last, we discuss three explanations of the decline in the commercial paper market: substitution to alternative sources of financing by commercial paper issuers, adverse selection, and institutional constraints among money market funds.
Volume (Year): 24 (2010)
Issue (Month): 1 (Winter)
|Contact details of provider:|| Web page: https://www.aeaweb.org/jep/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
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.:
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Oecd, 2009. "Monitoring Review of Korea," OECD Journal: Competition Law and Policy, OECD Publishing, vol. 9(3), pages 107-137.
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 171-177.
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 187-192.
- Timothy Q. Cook & Robert K. LaRoche (eds), 1993. "Instruments of the money market (foreword)," Monograph, Federal Reserve Bank of Richmond, number 1993iotmm.
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 175-187.
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 171-179.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
- Oecd, 2008. "DAC Peer Review of Canada," OECD Journal on Development, OECD Publishing, vol. 8(4), pages 263-387.
- Timothy Q. Cook & Robert K. LaRoche (eds), 1993. "Instruments of the money market," Monograph, Federal Reserve Bank of Richmond, number 1993iotm.
- Marcin Kacperczyk & Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Rational Attention Allocation Over the Business Cycle," NBER Working Papers 15450, National Bureau of Economic Research, Inc.
- Oecd, 2008. "DAC Peer Review of Denmark," OECD Journal on Development, OECD Publishing, vol. 8(4), pages 7-125.
When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:24:y:2010:i:1:p:29-50. 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: (Jane Voros)or (Michael P. Albert)
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.