Market Response to Policy Initiatives During the Global Financial Crisis

51 Pages Posted: 15 Mar 2010 Last revised: 14 Mar 2021

See all articles by Yacine Ait-Sahalia

Yacine Ait-Sahalia

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Jochen R. Andritzky

German Council of Economic Experts; International Monetary Fund (IMF)

Andreas (Andy) Jobst

International Monetary Fund (IMF) - European Department

Sylwia Barbara Nowak

International Monetary Fund (IMF)

Natalia T. Tamirisa

International Monetary Fund (IMF)

Date Written: March 2010

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.

Suggested Citation

Ait-Sahalia, Yacine and Andritzky, Jochen and Jobst, Andreas A. and Nowak, Sylwia Barbara and Tamirisa, Natalia T., Market Response to Policy Initiatives During the Global Financial Crisis (March 2010). NBER Working Paper No. w15809, Available at SSRN: https://ssrn.com/abstract=1569228

Yacine Ait-Sahalia (Contact Author)

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Jochen Andritzky

German Council of Economic Experts ( email )

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International Monetary Fund (IMF) ( email )

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Andreas A. Jobst

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
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United States
+1-202-538-2898 (Phone)

Sylwia Barbara Nowak

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Natalia T. Tamirisa

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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