Federal Reserve Policies and Financial Market Conditions during the Crisis

67 Pages Posted: 23 May 2011 Last revised: 14 Jul 2011

See all articles by Scott A. Brave

Scott A. Brave

Federal Reserve Bank of Chicago

Hesna Genay

Federal Reserve Bank of Chicago

Date Written: July 13, 2011

Abstract

During the recent financial crisis, the Federal Reserve implemented a series of extraordinary and unconventional policies to alleviate the impact of the crisis on financial markets and the economy. In this paper, we examine the effects of these policies on broad financial market conditions, explicitly taking into account that policy was endogenously determined in response to prevailing financial market and economic conditions. We find that the Fed was more likely to initiate or expand new programs when financial market conditions were tighter than usual and economic conditions deteriorating. We also find that the Fed’s policies improved broad financial market conditions significantly at announcement and that the improvements were associated primarily with program initiations and expansions.

Keywords: Financial crisis, Federal Reserve policies, liquidity programs, credit programs, monetary policy

JEL Classification: G01, E58, E65, G18, G28, G21

Suggested Citation

Brave, Scott A. and Genay, Hesna, Federal Reserve Policies and Financial Market Conditions during the Crisis (July 13, 2011). FRB of Chicago Working Paper No. 2011-04, Available at SSRN: https://ssrn.com/abstract=1846660 or http://dx.doi.org/10.2139/ssrn.1846660

Scott A. Brave

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Hesna Genay (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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