Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress

Jason Allen, Ali Hortaçsu and Jakub Kastl

American Economic Journal: Microeconomics, 2021, vol. 13, issue 2, 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.

JEL-codes: E42 E58 G01 G21 G28 H12 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1257/mic.20160287

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