EconPapers    
Economics at your fingertips  
 

The (Unintended?) Consequences of the Largest Liquidity Injection Ever

Matteo Crosignani (), Miguel Faria-e-Castro and Luís Fonseca

No 2017-011, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

Abstract: We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank’s three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening.

Keywords: Lender of Last Resort; Sovereign Debt; Unconventional Monetary Policy (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
Date: 2017-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Downloads: (external link)
https://www.federalreserve.gov/econresdata/feds/2017/files/2017011pap.pdf (application/pdf)

Related works:
Working Paper: The (Unintended?) Consequences of the Largest Liquidity Injection Ever (2019) Downloads
Working Paper: The (Unintended?) Consequences of the Largest Liquidity Injection Ever (2016) Downloads
Working Paper: The (unintended?) consequences of the largest liquidity injection ever (2016) Downloads
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:fip:fedgfe:2017-11

Ordering information: This working paper can be ordered from
http://www.federalre ... /feds/fedsorder.html

DOI: 10.17016/FEDS.2017.011

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ().

 
Page updated 2019-04-17
Handle: RePEc:fip:fedgfe:2017-11