Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress

Jason Allen, Ali Hortaçsu, Jakub Kastl

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)243-275
Number of pages33
JournalAmerican Economic Journal: Microeconomics
Volume13
Issue number2
DOIs
StatePublished - 2021

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance

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