When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009
Commercial paper is one of the largest money market instruments and has long been viewed as a safe haven for investors seeking low risk. However, during the financial crisis of 2007-2009, the commercial paper market experienced twice the modern-day equivalent of a bank run with investors unwilling to refinance maturing commercial paper. We analyze the supply of and demand for commercial paper and show that, in contrast to previous turbulent episodes, the crisis centered on commercial paper issued by, or guaranteed by, financial institutions. We describe the importance of Federal Reserve's interventions in restoring stability of the market. Finally, we propose three possible explanations for the sharp decline of the commercial paper market: substitution to alternative sources of financing by commercial paper issuers, adverse selection, and institutional constraints among money market funds.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
| Length: | |
| Date of creation: | Nov 2009 |
| Publication status: | published as Marcin Kacperczyk & Philipp Schnabl, 2010. "When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007-2009," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 29-50, Winter. |
| Handle: | RePEc:nbr:nberwo:15538 |
| Note: | AP CF |
| Contact details of provider: | Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Web page: http://www.nber.org Email: More information through EDIRC
|
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.:
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 171-177.
- 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, 2009. "Monitoring Review of Korea," OECD Journal: Competition Law and Policy, OECD Publishing, vol. 9(3), pages 107-137.
- Oecd, 2008. "DAC Peer Review of Denmark," OECD Journal on Development, OECD Publishing, vol. 8(4), pages 7-125.
- 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.
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 171-179.
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 187-192.
- (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 175-187.
- 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, January.
- Timothy Q. Cook & Robert K. LaRoche (eds), 1993. "Instruments of the money market (foreword)," Monograph, Federal Reserve Bank of Richmond, number 1993iotmm, January.
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15538. 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: ()
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.