Further Results on a Black Swan in the Money Market

John Taylor and John Williams

No 07-046, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: Using alternative measures of term lending rates and counterparty risk and a wide variety of econometric specifications, we find that counterparty risk has a robust significant effect on interest rate spreads in the term inter-bank loan markets. In contrast, we do not find comparably robust evidence of significant negative effects of the Fed’s term auction facility (TAF) on term lending rates. This analysis incorporates the latest data from the ongoing turmoil in the money markets and confirms earlier findings reported in Taylor and Williams (2008).

Keywords: interest rate spreads; counterparty risk; inter-bank loan market (search for similar items in EconPapers)
JEL-codes: E43 (search for similar items in EconPapers)
Date: 2008-05
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Citations: View citations in EconPapers (60)

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