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Liquidity Injections May Have Driven the Stock Market Recovery
SSRN
Working paper
The (unintended?) consequences of the largest liquidity injection ever
We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank's three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening.
BASE
The (Unintended?) consequences of the largest liquidity injection ever
In: Journal of Monetary Economics, Band 112, S. 97-112
The (Unintended?) Consequences of the Largest Liquidity Injection Ever
In: FRB St. Louis Working Paper No. 2017-39
SSRN
Working paper
The (Unintended?) Consequences of the Largest Liquidity Injection Ever
In: FEDS Working Paper No. 2017-011
SSRN
Working paper
The (Unintended?) Consequences of the Largest Liquidity Injection Ever
In: ESRB: Working Paper Series No. 2016/31
SSRN
Working paper
Financial (in)stability, supervision and liquidity injections: a dynamic general equilibrium approach
This paper develops a dynamic stochastic general equilibrium model with interactions between an heterogeneous banking sector and other private agents. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbankmarket. Our aim is to understand the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real data and used for simulations. We show that liquidity injections reduce financial instability but have ambiguous effects on output fluctuations. The model also confirms the partial equilibrium literature results on the procyclicality of Basel II.
BASE
The Effect of Central Bank Liquidity Injections on Bank Credit Supply
In: FEDS Working Paper No. 2017-038
SSRN
Working paper
Financial (In)Stability, Supervision and Liquidity Injections: A Dynamic General Equilibrium Approach
In: The economic journal: the journal of the Royal Economic Society, Band 120, Heft 549, S. 1234-1261
ISSN: 1468-0297
SSRN
Working paper
The Pecking Order of Segmentation and Liquidity-Injection Policies in a Model of Contagious Crises
National audience ; We study a two-country setting in which leveraged investors generate fire-sale externalities, leading to financial crises and contagion. Governments can affect the incidence of financial crisis and the degree of contagion by injecting public liquidity and, additionally, by segmenting the countries' liquidity markets. We show that segmentation allows a country to avoid contagion and fend off mild financial crises caused by a small shock to its liquidity demand, at the cost of exposing it to more severe financial crises caused by a large shock. We derive a "pecking order" result, whereby segmentation is a second-best measure that coordinated governments should use only when tax capacity constrains them from injecting liquidity. Even when segmentation is welfare-enhancing, it should be applied to public liquidity alone, never restricting the free ow of private liquidity across countries. Uncoordinated governments tend to use segmentation excessively.
BASE
The pecking order of segmentation and liquidity-injection policies in a model of contagious crises
We study a two-country setting in which leveraged investors generate fire-sale externalities, leading to financial crises and contagion. Governments can affect the incidence of financial crisis and the degree of contagion by injecting public liquidity and, additionally, by segmenting the countries' liquidity markets. We show that segmentation allows a country to avoid contagion and fend off mild financial crises caused by a small shock to its liquidity demand, at the cost of exposing it to more severe financial crises caused by a large shock. We derive a "pecking order" result, whereby segmentation is a second-best measure that coordinated governments should use only when tax capacity constrains them from injecting liquidity. Even when segmentation is welfare-enhancing, it should be applied to public liquidity alone, never restricting the free flow of private liquidity across countries. Uncoordinated governments tend to use segmentation excessively.
BASE
Liquidity, Contagion and Financial Crisis
SSRN
Working paper
How does easing liquidity constraints affect aggregate employment?
We measure the impact of removing liquidity constraints on aggregate employment by focusing on a sudden and unexpected large liquidity injection to Spanish firms in early 2012, when the Spanish central government paid all invoices of firms to regional and municipal governments that were in arrears. We identify the effect on employment from the cross-sectional variation in the size of the liquidity injection received by Spanish municipalities. Our preliminary finding sindicate that labor market responses can be detected both in the municipality where the liquidity injection occurs and in the municipality where firms are headquartered. We find evidence that the effect on unemployment is stronger where the liquidity injection originates whereas the effect on employment is stronger where the firms are located.
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