TY - JOUR
T1 - Crisis Management in Canada
T2 - Analyzing Default Risk and Liquidity Demand during Financial Stress
AU - Allen, Jason
AU - Hortaçsu, Ali
AU - Kastl, Jakub
N1 - Funding Information:
*Allen: Financial Stability Department, Bank of Canada, 234 Wellington Street, Ottawa, ON. K1A0G9 (email: jallen@bankofcanada.ca); Hortaçsu: Department of Economics, University of Chicago, 1126 E. 59th Street, Chicago, IL, 60637, and NBER (email: hortacsu@uchicago.edu); Kastl: Department of Economics, Princeton University, 391 Julis Romo Rabinowitz Bldg., Princeton, NJ, 08544-1021, NBER, and CEPR (email: jkastl@ princeton.edu). John Asker was coeditor for this article. We would like to thank Darrell Duffie, Toni Gravelle, Karen McGuinness, Jim Thompson, David Skeie, Virginie Traclet, and seminar participants at the Bank of Canada, Duke, Stanford, Yale, the 2010 MTS Conference on Financial Markets (London), NY Fed auctions workshop, and 2011 AEAs (Denver). Sheisha Kulkarni and Iiro Makinen provided outstanding research assistance. We thank the Canadian Payments Association, who collects the payments data. The views expressed here are those of the authors and should not be attributed to the Bank of Canada. Hortaçsu acknowledges the financial support of the NSF (SES-1124073, ICES-1216083, and SES-1426823). Kastl acknowledges the financial support of the NSF (SES-1123314 and SES-1352305) and the Sloan Foundation. Any errors are our own.
Publisher Copyright:
© 2021
PY - 2021
Y1 - 2021
N2 - Using detailed information from the Canadian interbank payments system and liquidity-providing facilities, we find that despite sustained increases in market-rate spreads, the increase in banks’ willingness to pay for liquidity during the 2008–2009 financial crisis was short-lived. Our study suggests that high-frequency distress indicators based on demand for liquidity offered by central banks can be complementary, and perhaps even superior, to market-based indicators, especially during times and in markets where uncertainty in the economic environment may lead to lack of meaningful information in prices due to absence of trading. (JEL E42, E58, G01, G21, G28, H12)
AB - Using detailed information from the Canadian interbank payments system and liquidity-providing facilities, we find that despite sustained increases in market-rate spreads, the increase in banks’ willingness to pay for liquidity during the 2008–2009 financial crisis was short-lived. Our study suggests that high-frequency distress indicators based on demand for liquidity offered by central banks can be complementary, and perhaps even superior, to market-based indicators, especially during times and in markets where uncertainty in the economic environment may lead to lack of meaningful information in prices due to absence of trading. (JEL E42, E58, G01, G21, G28, H12)
UR - http://www.scopus.com/inward/record.url?scp=85120851299&partnerID=8YFLogxK
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U2 - 10.1257/mic.20160287
DO - 10.1257/mic.20160287
M3 - Article
AN - SCOPUS:85120851299
SN - 1945-7669
VL - 13
SP - 243
EP - 275
JO - American Economic Journal: Microeconomics
JF - American Economic Journal: Microeconomics
IS - 2
ER -