Financial Amplification Mechanisms and the Federal Reserve's Supply of Liquidity During the Crisis

Sarkar, Asani; Shrader, Jeffrey

doi:10.2139/ssrn.1678169

Cited by 20 publications

(15 citation statements)

References 47 publications

(63 reference statements)

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“…Accepting corporate debt as collateral will then reduce the spread by increasing their liquidity/resaleability. Hence, changing the terms of central bank lending a¤ects interest rate spreads via liquidity premia in accordance with empirical evidence on the e¤ects of recently introduced Fed lending facilities (see Fleming et al, 2010, andSarkar andShrader, 2010).…”

Section: Introductionsupporting

confidence: 80%

Optimal central bank lending

Schabert

2015

Journal of Economic Theory

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe analyze optimal monetary policy in a sticky price model where the central bank supplies money outright via asset purchases and lends money temporarily against collateral. The terms of central bank lending a¤ect rationing of money and impact on macroeconomic aggregates. The central bank can set the policy rate and its in ‡ation target in a way that implements the …rst best long-run allocation, which is impossible if money were supplied in a lump-sum way (as commonly assumed). E¢ cient central bank lending further increases gains from macroeconomic stabilization beyond pure interest rate policy. This requires departing from a "Treasuriesonly" regime.JEL classi…cation: E4; E5; E32.

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Section: Introductionsupporting

confidence: 80%

Optimal central bank lending

Schabert

2015

Journal of Economic Theory

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“…For example, McAndrews, Sarkar and Wang (2008) find that announcements about the Term Auction Facility (TAF) did significantly lower credit spreads. Wu (2008), Christensen, Lopez and Rudebusch (2009) and Sarkar and Shrader (2010) also conclude that the TAF and other credit facilities helped lower interest rates. 1 Baba and Packer (2009) and McAndrews (2009), Goldberg, Kennedy and Miu (2010) find that the U.S. dollar swap facilities helped improve the performance of the dollar swap markets.…”

Section: Nonconventional Monetary Policymentioning

confidence: 92%

Over the Cliff: From the Subprime to the Global Financial Crisis

Mishkin

2011

Journal of Economic Perspectives

288

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The financial crisis of 2007 to 2009 can be divided into two distinct phases. The first and more limited phase from August 2007 to August 2008 stemmed from losses in one relatively small segment of the U.S. financial system—namely, subprime residential mortgages. Despite this disruption to financial markets, real GDP in the United States continued to rise into the second quarter of 2008, and forecasters were predicting only a mild recession. In mid-September 2008, however, the financial crisis entered a far more virulent phase. In rapid succession, the investment bank Lehman Brothers entered bankruptcy on September 15, 2008; the insurance firm AIG collapsed on September 16, 2008; there was a run on the Reserve Primary Fund money market fund on the same day; and the highly publicized struggle to pass the Troubled Asset Relief Program (TARP) began. How did something that appeared in mid-2008 to be a significant but fairly mild financial disruption transform into a full-fledged global financial crisis? What caused this transformation? Did the government responses to the global financial crisis help avoid a worldwide depression? What challenges do these government interventions raise for the world financial system and the economy going forward?

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“…market fund holding Lehman Brothers commercial paper "broke the buck," a broad-based run developed in the sector, to which the Treasury responded with a guarantee program and the Fed with new liquidity programs. Increasingly, however, funding concerns were morphing into solvency problems, with investors losing faith in a number of large institutions (Sarkar and Shrader 2010). The policy responses during this period evolved accordingly.…”

Section: Conclusion and Policy Implicationsmentioning

confidence: 99%

The Real Effects of Disrupted Credit: Evidence from the Global Financial Crisis

Bernanke¹

2018

Brookings Papers on Economic Activity

114

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Economists both failed to predict the global financial crisis and underestimated its consequences for the broader economy. Focusing on the second of these failures, this paper makes two contributions. First, I review research since the crisis on the role of credit factors in the decisions of households, firms, and financial intermediaries and in macroeconomic modeling. This research provides broad support for the view that credit market developments deserve greater attention from macroeconomists, not only for analyzing the economic effects of financial crises but in the study of ordinary business cycles as well. Second, I provide new evidence on the channels by which the recent financial crisis depressed economic activity in the United States. Although the deterioration of household balance sheets and the associated deleveraging likely exacerbated the initial economic downturn and the slowness of the recovery, I find that the unusual severity of the Great Recession was due primarily to the panic in funding and securitization markets, which disrupted the supply of credit. This finding helps to justify the government's extraordinary efforts to stem the panic in order to avoid greater damage to the real economy.

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Financial Amplification Mechanisms and the Federal Reserve's Supply of Liquidity During the Crisis

Cited by 20 publications

References 47 publications

Optimal central bank lending

Optimal central bank lending

Over the Cliff: From the Subprime to the Global Financial Crisis

The Real Effects of Disrupted Credit: Evidence from the Global Financial Crisis

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