Cover IMF Working Papers
The Effectiveness of Central Bank Interventions During the First Phase of the Subprime Crisis
Author: Mr. Heiko Hesse and Nathaniel Frank
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 206
Language:
English
Publication Date:
01 Sep 2009
DOI:
https://doi.org/10.5089/9781451873535.001
ISBN:
9781451873535
ISSN:
1018-5941
Pages:
28
Keywords:
WP; Libor; subprime crisis; federal funds
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund