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Monetary Policy, Liquidity, and Financial Crises: Market and Public Liquidity

Author

Listed:
  • Patrick Bolton

    (Columbia University)

  • Tano Santos

    (Columbia University)

  • Jose A. Scheinkman

    (Princeton University)

Abstract

As the record of Federal Reserve interventions over the past year, from December 2007 to December 2008, makes abundantly clear, a foremost concern of monetary authorities in responding to the financial crisis has been to avoid a repeat of the Great Depression, and especially a repeat of the monetary contraction that Milton Friedman and Anna Schwartz (1963) have claimed as the major cause of the 1930s Depression. The Fed has shown tremendous resourcefulness and inventiveness in its liquidity injections, considerably widening the collateral eligible under the discount window and the term auction facility, and setting up new programs targeted at primary dealers, the commercial paper market, and money market funds. At the same time it has stepped in to offer guarantees on assets held by some financial institutions (e.g., Citigroup) to avoid their bankruptcy.

Suggested Citation

  • Patrick Bolton & Tano Santos & Jose A. Scheinkman, 2009. "Monetary Policy, Liquidity, and Financial Crises: Market and Public Liquidity," Working Papers 1394, Princeton University, Department of Economics, Econometric Research Program..
    • Handle: RePEc:pri:metric:wp034_2012_bolton_santos_scheinkman_market%20and%20public%20liquidity.pdf
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    References listed on IDEAS

    as
    1. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
    2. repec:bla:jfinan:v:53:y:1998:i:4:p:1245-1284 is not listed on IDEAS
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    More about this item

    Keywords

    Federal reserve; great recession; banking;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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