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Federal Reserve policies and financial market conditions during the crisis

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  • Scott Brave
  • Hesna Genay

Abstract

During the recent financial crisis, the Federal Reserve implemented a series of extraordinary and unconventional policies to alleviate the impact of the crisis on financial markets and the economy. In this paper, we examine the effects of these policies on broad financial market conditions, explicitly taking into account that policy was endogenously determined in response to prevailing financial market and economic conditions. We find that the Fed was more likely to initiate or expand new programs when financial market conditions were tighter than usual and economic conditions deteriorating. We also find that the Fed’s policies improved broad financial market conditions significantly at announcement and that the improvements were associated primarily with program initiations and expansions.

Suggested Citation

  • Scott Brave & Hesna Genay, 2011. "Federal Reserve policies and financial market conditions during the crisis," Working Paper Series WP-2011-04, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-2011-04
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    References listed on IDEAS

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    Cited by:

    1. Guidolin, Massimo & Tam, Yu Man, 2013. "A yield spread perspective on the great financial crisis: Break-point test evidence," International Review of Financial Analysis, Elsevier, vol. 26(C), pages 18-39.
    2. Scott Brave & R. Andrew Butters, 2012. "Diagnosing the Financial System: Financial Conditions and Financial Stress," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 191-239, June.
    3. Contessi, Silvio & De Pace, Pierangelo & Guidolin, Massimo, 2014. "How did the financial crisis alter the correlations of U.S. yield spreads?," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 362-385.
    4. repec:eee:jfinin:v:32:y:2017:i:c:p:1-15 is not listed on IDEAS

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    Keywords

    Federal Reserve Act ; Financial crises - United States;

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