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The Federal Reserve's Liquidity Backstops to the Municipal Bond Market during the COVID-19 Pandemic

Author

Listed:
  • Bin Wei
  • Vivian Z. Yue

Abstract

The COVID-19 pandemic has caused tremendous hardship all over the world. In response, the Federal Reserve has moved quickly and aggressively to support the economy in the United States. In this article, we present some initial evidence for the effectiveness of some of the facilities in calming the municipal bond market, particularly the short-term variable-rate demand obligation (VRDO) market. We discuss the important role of liquidity backstops in mitigating runs and stabilizing financial markets in general based on insights from our study on the runs on VRDO and auction-rate securities (ARS) in 2008 during the financial crisis.

Suggested Citation

  • Bin Wei & Vivian Z. Yue, 2020. "The Federal Reserve's Liquidity Backstops to the Municipal Bond Market during the COVID-19 Pandemic," Policy Hub 2020-5, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:a00001:88075
    DOI: 10.29338/ph2020-05
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    File URL: https://www.frbatlanta.org/-/media/documents/research/publications/policy-hub/2020/05/28/the-federal-reserves-liquidity-backstops-to-the-municipal-bond-market-during-the-covid-19-pandemic.pdf
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    References listed on IDEAS

    as
    1. Wei, Bin & Yue, Vivian Z., 2020. "Liquidity backstops and dynamic debt runs," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy > Tax revenue

    More about this item

    Keywords

    municipal bond; COVID-19 pandemic; liquidity backstops;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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