The U.S. Money Market and the Term Auction Facility in the Financial Crisis of 2007-–2009

Tao Wu ()

The Review of Economics and Statistics, 2011, vol. 93, issue 2, 617-631

Abstract: The interbank money market in the United States and Europe became turbulent during the financial crisis of 2007-–2009, with the counterparty default risk premiums and liquidity premiums of short-term financing among major financial institutions rising sharply to unprecedented levels. Using various measures of macroeconomic and financial risks, I find that the surges in counterparty risk premiums were predominantly driven by heightened uncertainties about the macroeconomy and financial market, as well as underlying mortgage default risks. The new liquidity facility that the Federal Reserve established, the Term Auction Facility, significantly relieved the strains in the money market, primarily through lowering banks' liquidity concerns. Its effect on the counterparty risk premiums, however, has been quite limited. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00083 link to full text (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:restat:v:93:y:2011:i:2:p:617-631

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().