How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

Abstract

The events following Lehman’s failure in 2008 and the current turmoil emanating from Europe highlight the structural vulnerabilities of short-term credit markets and the role of central banks as back-stop liquidity providers to financial markets. The Federal Reserve’s response to financial disruptions in the United States importantly included creating liquidity facilities. Using unique micro datasets and a differences-in-differences approach, we evaluate one of the most unusual of these interventions — the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. Our findings indicate that this facility helped stabilize asset outflows from money market funds and reduced asset-backed commercial paper yields significantly.

Keywords: Federal Reserve, Financial Crisis, Discount Window, Money Market Mutual Funds, Commercial Paper, Asset-Backed Commercial Paper

JEL Classification: E58, G01, G20