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Market Response to Policy Initiatives during the Global Financial Crisis

  • Yacine Aït-Sahalia
  • Jochen Andritzky
  • Andreas Jobst
  • Sylwia Nowak
  • Natalia Tamirisa

This paper examines the impact of macroeconomic and financial sector policy announcements in the United States, the United Kingdom, the euro area, and Japan during the recent crisis on interbank credit and liquidity risk premia. Announcements of interest rate cuts, liquidity support, liability guarantees, and recapitalization were associated with a reduction of interbank risk premia, albeit to a different degree during the subprime and global phases of the crisis. Decisions not to reduce interest rates and bail out individual banks in an ad hoc manner had adverse repercussions, both domestically and abroad. The results are robust to controlling for the surprise content of announcements and using alternative measures of financial distress.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15809.

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Date of creation: Mar 2010
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Publication status: published as Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 162-177.
Handle: RePEc:nbr:nberwo:15809
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