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The Impact of Policy Decisions on Global Liquidity During the Recent Financial Crisis
Author(s) -
Satiroglu Sait,
Sener Emrah,
Shafer Michael,
Yildirim Yildiray
Publication year - 2015
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1507
Subject(s) - market liquidity , financial crisis , economics , treasury , liquidity crisis , swap (finance) , financial market , monetary economics , monetary policy , financial system , exchange rate , asset (computer security) , money market , economic bubble , finance , macroeconomics , archaeology , computer science , history , computer security
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. Copyright © 2015 John Wiley & Sons, Ltd.