 Response of the Financial Markets to the European Central Bank’s Policy Announcements during the Subprime and Global Financial CrisisMPRA Paper from University Library of Munich, Germany Abstract: This paper surveys evidence of the impact of macroeconomic and financial sector policy announcements in the euro area during the recent crisis on interbank credit and liquidity risk premia. Evidence suggests that interest rates cuts, fiscal stimulus and recapitalization measures were effective in calming the distressed financial markets as measured by reduction of the Libor–OIS spread. However, decisions not to reduce interest rates as well as ad hoc bank bailouts widened the Libor–OIS spread thus increased stress in the financial markets. Liquidity support announcements were initially effective, as measured by the reduction in the Libor-OIS spread, but lost significance as the crisis worsened. Both announcements of capital injections and guarantees on bank liabilities were effective in reducing credit risk in the euro area. The results of the event study further illustrate that the short-term impact of interventions depended on the particular circumstances that prevailed during each phase of the crisis. Keywords: Financial Markets; European Central Bank; Policy Announcements; Subprime Crisis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:78846 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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