How to Stop a Herd of Running Bears? Market Response to Policy Initiatives during the Global Financial Crisis

September 1, 2009

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Format: Chicago

How to Stop a Herd of Running Bears? Market Response to Policy Initiatives during the Global Financial Crisis, (USA: International Monetary Fund, 2009) accessed November 21, 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

This paper examines the impact of macroeconomic and financial sector policy announcements in the United States, the United Kingdom, the euro area, and Japan during the recent crisis on interbank credit and liquidity risk premia. Announcements of interest rate cuts, liquidity support, liability guarantees, and recapitalization were associated with a reduction of interbank risk premia, albeit to a different degree during the subprime and global phases of the crisis. Decisions not to reduce interest rates and bail out individual banks in an ad hoc manner had adverse repercussions, both domestically and abroad. The results are robust to controlling for the surprise content of announcements and using alternative measures of financial distress.

Subject: Bank bailouts, Banking, Credit risk, Financial sector policy, Liquidity risk

Keywords: Bank bailout, Monetary policy, Recapitalization program, Risk premia, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/204
Stock No:

WPIEA2009204
ISBN:

9781451873511
ISSN:

1018-5941

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