Provision of Liquidity Through the Primary Credit Facility During the Financial Crisis: A Structural Analysis

Abstract

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 AbstractOver the course of the recent liquidity crisis, the Federal Reserve made several changes to its primary credit lending facility such as narrowing the spread between the primary credit rate and the target funds rate and increasing the term of the borrowing. In this paper, we use the model developed by Artuç and Demiralp (2008) to provide a structural assessment of the effectiveness of these changes. Our results suggest that these changes were effective in stabilizing the federal funds market.

How to Stop a Herd of Running Bears? Market Response to Policy Initiatives During the Global Financial Crisis

“…The provision of liquidity support seems to have helped reduce funding pressures for those institutions that had access to liquidity facilities, contributing to lower liquidity risk premia in the interbank markets (consistent with the findings in Artuç and Demiralp, forthcoming;McAndrews, Sarkar, and Wang, 2008;Deutsche Bank, 2009;and Christensen, 2009). …”