Responses to the Financial Crisis, Treasury Debt, and the Impact on Short-Term Money Markets

37 Pages Posted: 15 Jan 2011

See all articles by Warren B. Hrung

Warren B. Hrung

Federal Reserve Bank of New York

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy

Date Written: January 1, 2011

Abstract

Several programs have been introduced by U.S. fiscal and monetary authorities in response to the financial crisis. We examine the responses involving Treasury debt - the Term Securities Lending Facility (TSLF), the Supplemental Financing Program, increases in Treasury issuance, and open market operations - and their impacts on the overnight Treasury general collateral repo rate, a key money market rate. Our contribution is to consider each policy in light of the others, both to help guide policy responses to future crises and to emphasize policy interactions. Only the TSLF was designed to directly address stresses in short-term money markets by temporarily changing the supply of Treasury collateral in the marketplace. We find that the TSLF is uniquely effective relative to other policies and that, while changes in Treasury collateral do affect repo rates, the impacts are not equivalent across sources of Treasury collateral.

Keywords: Treasury Debt, Monetary Policy

JEL Classification: E58, G01, H60

Suggested Citation

Hrung, Warren B. and Seligman, Jason S., Responses to the Financial Crisis, Treasury Debt, and the Impact on Short-Term Money Markets (January 1, 2011). FRB of New York Staff Report No. 481, Available at SSRN: https://ssrn.com/abstract=1739777 or http://dx.doi.org/10.2139/ssrn.1739777

Warren B. Hrung (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States
(202) 622-1683 (Phone)

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