How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

59 Pages Posted: 2 May 2010 Last revised: 22 Feb 2012

See all articles by Burcu Duygan-Bump

Burcu Duygan-Bump

Board of Governors of the Federal Reserve System

Patrick M. Parkinson

Government of the United States of America - Division of Research and Statistics

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Gustavo Suarez

Board of Governors of the Federal Reserve System

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Date Written: February 21, 2012

Abstract

The events following Lehman’s failure in 2008 and the current turmoil emanating from Europe highlight the structural vulnerabilities of short-term credit markets and the role of central banks as back-stop liquidity providers to financial markets. The Federal Reserve’s response to financial disruptions in the United States importantly included creating liquidity facilities. Using unique micro datasets and a differences-in-differences approach, we evaluate one of the most unusual of these interventions — the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. Our findings indicate that this facility helped stabilize asset outflows from money market funds and reduced asset-backed commercial paper yields significantly.

Keywords: Federal Reserve, Financial Crisis, Discount Window, Money Market Mutual Funds, Commercial Paper, Asset-Backed Commercial Paper

JEL Classification: E58, G01, G20

Suggested Citation

Duygan-Bump, Burcu and Parkinson, Patrick M. and Rosengren, Eric S. and Suarez, Gustavo and Willen, Paul S., How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (February 21, 2012). Journal of Finance, Forthcoming, FRB of Boston Quantitative Analysis Unit Working Paper No. 10-3, Available at SSRN: https://ssrn.com/abstract=1596677

Burcu Duygan-Bump (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
2029124663 (Phone)

Patrick M. Parkinson

Government of the United States of America - Division of Research and Statistics

20th and C Streets, NW
Washington, DC 20551
United States

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3090 (Phone)
617-973-3219 (Fax)

Gustavo Suarez

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Paul S. Willen

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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