IMF Working Papers

IMF Working Papers
Journal
Publisher:
International Monetary Fund
ISSN:
1018-5941
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. With nearly 300 released each year, working papers cover a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
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The Effectiveness of Central Bank Interventions During the First Phase of the Subprime Crisis

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The Effectiveness of Central Bank Interventions During the First Phase of the Subprime Crisis
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Journal Issue
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Volume/Issue:
2009/206
Series:
IMF Working Papers
Author(s):
Heiko Hesse, and Nathaniel Frank
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
September 2009
DOI:
http://dx.doi.org/10.5089/9781451873535.001
ISBN:
9781451873535
ISSN:
1018-5941
Page:
28
This paper provides evidence that central bank interventions had a statistically significant impact on easing stress in unsecured interbank markets during the first phase of the subprime crisis which began in July 2007. Extraordinary liquidity provisions, such as the Term Auction Facility by the Federal Reserve, are analyzed. First a decomposition of the Libor-OIS spread indicates that credit premia increased in importance as the crisis deepened. Second, using Markov switching models, central bank operations are then graphically associated with reductions in term funding stress. Finally, bivariate VAR and GARCH models are adopted to econometrically quantified these impacts. While helpful in compressing Libor spreads, the economic magnitudes of central interventions have overall not been very large.
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