Credit and Liquidity Policies during Large Crises

Mahdi Ebsim, Miguel Faria-e-Castro and Julian Kozlowski

No 2020-035, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of real and financial shocks, while COVID-19 also featured liquidity shocks. We study the state-dependent effects of credit and liquidity policies.

Keywords: credit spreads; liquidity; Great Recession; COVID-19 (search for similar items in EconPapers)
JEL-codes: E6 G2 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2020-10-09, Revised 2024-02-22
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2020/2020-035.pdf Full Text (application/pdf)

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:fip:fedlwp:88871

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2020.035

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().