The Federal Reserve’s Response to the 1987 Market Crash

Journal of Financial Crises: Vol. 2 : Iss. 3, 116-130. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/4

Yale Program on Financial Stability Working Paper

15 Pages Posted: 26 Oct 2020

See all articles by Kaleb Nygaard

Kaleb Nygaard

Yale University - Yale Program on Financial Stability

Date Written: October 10, 2020

Abstract

The S&P 500 lost 10% the week ending Friday, October 16, 1987, and lost an additional 20% the following Monday, October 19, 1987. The date would be remembered as Black Monday. The Federal Reserve (the Fed) responded to the crash in four distinct ways: (1) issuing a public statement promising to provide liquidity, as needed, “to support the economic and financial system”; (2) providing support to the Treasury securities market by injecting in-high-demand maturities into the market via reverse repurchase agreements; (3) allowing the federal funds rate to fall from 7.5% to 7.0% and below; and (4) intervening directly to allow the rescue of the largest options clearing firm in Chicago.

Keywords: Federal Reserve, stock market crash, 1987, Black Monday, market liquidity

JEL Classification: G01,G28

Suggested Citation

Nygaard, Kaleb, The Federal Reserve’s Response to the 1987 Market Crash (October 10, 2020). Journal of Financial Crises: Vol. 2 : Iss. 3, 116-130. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/4, Yale Program on Financial Stability Working Paper, Available at SSRN: https://ssrn.com/abstract=3717235

Kaleb Nygaard (Contact Author)

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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