Working Paper: NBER ID: w15809
Authors: Yacine Atsahalia; Jochen Andritzky; Andreas Jobst; Sylwia Nowak; Natalia Tamirisa
Abstract: 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.
Keywords: policy initiatives; global financial crisis; interbank credit; liquidity risk premia
JEL Codes: E63; E65; G01; G14; G15; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interest rate cuts (E43) | reduction in LIBOR-OIS spread (F65) |
| liquidity support announcements (E44) | reduction in interbank risk premia (G21) |
| fiscal policy announcements (E62) | negligible impact on interbank risk perceptions (F65) |
| ad hoc bank bailouts (G28) | increase in LIBOR-OIS spread (F65) |
| recapitalization announcements (G32) | favorable effect on interbank risk premia (E44) |