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Federal Reserve policies and financial market conditions during the crisis

  • Scott Brave
  • Hesna Genay

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.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2011-04.

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Date of creation: 2011
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Handle: RePEc:fip:fedhwp:wp-2011-04
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