The Impact of Policy Decisions on Global Liquidity During the Recent Financial Crisis

22 Pages Posted: 10 Feb 2015

See all articles by Sait Satiroglu

Sait Satiroglu

Center For Computational Finance

Emrah Sener

Ozyegin University

Michael Shafer

Providence College

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

Date Written: July 2, 2013

Abstract

The collapse of the recent housing price bubble precipitated the 2007-2008 financial crisis and caused international funding liquidity to dry up. We investigate how economic policies undertaken by the Federal Reserve and U.S. Treasury around the crisis impacted global liquidity by examining the covered interest rate parity (CIRP) condition. We find that swap lines orchestrated by the Fed, stress test announcements, asset purchase programs, and other economic policy and news events significantly impacted CIRP violations. Our findings indicate that policies undertaken during the crisis helped relieve market frictions in foreign exchange markets and that the impact of these policies differed for developed and emerging markets.

Keywords: Covered Interest Rate Parity, Economic Policy, Financial Crisis, Currency Liquidity, Foreign Exchange Rates

JEL Classification: G01, G12

Suggested Citation

Satiroglu, Sait and Sener, Emrah and Shafer, Michael and Yildirim, Yildiray, The Impact of Policy Decisions on Global Liquidity During the Recent Financial Crisis (July 2, 2013). Available at SSRN: https://ssrn.com/abstract=2562487 or http://dx.doi.org/10.2139/ssrn.2562487

Sait Satiroglu

Center For Computational Finance ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

Emrah Sener

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

Michael Shafer (Contact Author)

Providence College ( email )

1 Cunningham Square
Providence, RI 02918
United States
401-865-1928 (Phone)

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

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