Central Bank Response to the 2007–08 Financial Market Turbulence: Experiences and Lessons Drawn

By Peter Stella, Seiichi Shimizu, Simon T Gray, Ulrich H Klueh, Alexandre Chailloux

September 1, 2008

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Format: Chicago

Peter Stella, Seiichi Shimizu, Simon T Gray, Ulrich H Klueh, and Alexandre Chailloux. Central Bank Response to the 2007–08 Financial Market Turbulence: Experiences and Lessons Drawn, (USA: International Monetary Fund, 2008) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper reviews the policy response of major central banks during the 2007–08 financial market turbulence and suggests that there is scope for convergence among central bank operational frameworks through the adoption of those elements that proved most instrumental in calming markets. These include (i) rapid liquidity provision to a broad range of counterparties; (ii) a congruence of collateral policies with market developments; (iii) an ability to increase the average maturity of liquidity provision; and (iv) central bank cooperation to facilitate the use of cross-border collateral. Flexible use of open market operations was needed to avoid the stigma associated with traditional standing facilities, and allowed central banks to maintain at least basic market functioning. Having a flexible framework, however, requires careful consideration of the desirable limits to market intervention.

Subject: Banking, Collateral, Liquidity, Open market operations, Standing facilities

Keywords: Balance sheet, Financial market, Liquidity management, Monetary policy, Money market, Overnight rate, U.S. dollar, WP

Publication Details

Pages:

52
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/210
Stock No:

WPIEA2008210
ISBN:

9781451870688
ISSN:

1018-5941

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