The U.S. Money Market and the Term Auction Facility in the Financial Crisis of 2007-–2009
The interbank money market in the United States and Europe became turbulent during the financial crisis of 2007-–2009, with the counterparty default risk premiums and liquidity premiums of short-term financing among major financial institutions rising sharply to unprecedented levels. Using various measures of macroeconomic and financial risks, I find that the surges in counterparty risk premiums were predominantly driven by heightened uncertainties about the macroeconomy and financial market, as well as underlying mortgage default risks. The new liquidity facility that the Federal Reserve established, the Term Auction Facility, significantly relieved the strains in the money market, primarily through lowering banks' liquidity concerns. Its effect on the counterparty risk premiums, however, has been quite limited. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Year of publication: |
2011
|
---|---|
Authors: | Wu, Tao |
Published in: |
The Review of Economics and Statistics. - MIT Press. - Vol. 93.2011, 2, p. 617-631
|
Publisher: |
MIT Press |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Unconventional Monetary Policy and Long-Term Interest Rates
Wu, Tao, (2014)
-
Measuring Oil-Price Shocks Using Market-Based Information
Wu, Tao, (2012)
-
Playing by the Rules: Reforming Fiscal Governance in Europe
Eyraud, Luc, (2015)
- More ...