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Taylor, John B., and
John C. Williams. 2009. "A Black Swan in the Money Market."
,
1(1): 58-83.
Show Article Details
DOI: 10.1257/mac.1.1.58
Abstract:The recent financial crisis saw a dramatic and persistent jump in
interest rate spreads between overnight federal funds and longer -
term interbank loans. The Fed took several actions to reduce these
spreads including the creation of the Term Auction Facility (TAF). The
effectiveness of these policies depends on the cause of the increased
spreads such as counterparty risk, liquidity, or other factors. Using
a no-arbitrage pricing framework and various measures of risk, we
find robust evidence that increased counterparty risk contributed to
the rise in spreads but do not find robust evidence that the TAF had
a significant effect on spreads. (JEL E43, E44, E52, G21)
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Authors:
Taylor, John B. (Stanford U)
Williams, John C. (Federal Reserve Bank of San Francisco)
JEL Classifications:
E43: Determination of Interest Rates; Term Structure of Interest Rates
E44: Financial Markets and the Macroeconomy
E52: Monetary Policy
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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