How to Stop a Herd of Running Bears? Market Response to Policy Initiatives During the Global Financial Crisis

50 Pages Posted: 13 Oct 2009

See all articles by Jochen R. Andritzky

Jochen R. Andritzky

Universität St. Gallen

Andreas (Andy) Jobst

Central Bank of the UAE

Sylwia Barbara Nowak

affiliation not provided to SSRN

Yacine Ait-Sahalia

Princeton University - Department of Economics

Natalia T. Tamirisa

International Monetary Fund (IMF)

Date Written: September 2009

Abstract

This paper examines the impact of macroeconomic and financial sector policy announcements in the United States, the United Kingdom, the euro area, and Japan during the recent crisis on interbank credit and liquidity risk premia. Announcements of interest rate cuts, liquidity support, liability guarantees, and recapitalization were associated with a reduction of interbank risk premia, albeit to a different degree during the subprime and global phases of the crisis. Decisions not to reduce interest rates and bail out individual banks in an ad hoc manner had adverse repercussions, both domestically and abroad. The results are robust to controlling for the surprise content of announcements and using alternative measures of financial distress.

Keywords: Banks, Capital markets, Central banks, Data analysis, Databases, Financial crisis, Financial sector, Monetary policy, Spillovers, Statistics

Suggested Citation

Andritzky, Jochen R. and Jobst, Andreas A. and Nowak, Sylwia Barbara and Ait-Sahalia, Yacine and Tamirisa, Natalia T., How to Stop a Herd of Running Bears? Market Response to Policy Initiatives During the Global Financial Crisis (September 2009). IMF Working Paper No. 09/204, Available at SSRN: https://ssrn.com/abstract=1486522

Jochen R. Andritzky (Contact Author)

Universität St. Gallen ( email )

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Saint Gallen, St. Gallen CH-9000
Switzerland

Andreas A. Jobst

Central Bank of the UAE ( email )

Abu Dhabi, Abu Dhabi
United Arab Emirates
+971-543439374 (Phone)

HOME PAGE: http://https://www.linkedin.com/in/andyjobst/

Sylwia Barbara Nowak

affiliation not provided to SSRN

No Address Available

Yacine Ait-Sahalia

Princeton University - Department of Economics ( email )

Fisher Hall
Princeton, NJ 08544
United States
609-258-4015 (Phone)
609-258-5398 (Fax)

Natalia T. Tamirisa

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States