Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress
- (pp. 243-75)
Abstract
Using detailed information from the Canadian interbank payments system and liquidity-providing facilities, we find that despite sustained increases in market-rate spreads, the increase in banks' willingness to pay for liquidity during the 2008–2009 financial crisis was short-lived. Our study suggests that high-frequency distress indicators based on demand for liquidity offered by central banks can be complementary, and perhaps even superior, to market-based indicators, especially during times and in markets where uncertainty in the economic environment may lead to lack of meaningful information in prices due to absence of trading.Citation
Allen, Jason, Ali Hortaçsu, and Jakub Kastl. 2021. "Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress." American Economic Journal: Microeconomics, 13 (2): 243-75. DOI: 10.1257/mic.20160287Additional Materials
JEL Classification
- E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
- E58 Central Banks and Their Policies
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- H12 Crisis Management
There are no comments for this article.
Login to Comment