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Full-Text Articles in Economic Policy
The Financialization Of Recession Response, Aaron Klein
The Financialization Of Recession Response, Aaron Klein
Journal of Financial Crises
This paper analyzes economic policy responses to the COVID-19-induced recession, focusing on the American policy response. Despite widespread political distrust between the two parties sharing control of the government and the timing of the upcoming presidential election, America’s political system was able to enact a massive policy response that reduced the severity of the recession. This political response happened faster than any automatic policy response would have, based on the delays in data reporting. The economic policies enacted continued America’s trend toward financialization of fiscal policy. The Federal Reserve and America’s private banking and financial systems were heavily relied upon …
United States: Primary Dealer Credit Facility, Carey K. Mott
United States: Primary Dealer Credit Facility, Carey K. Mott
Journal of Financial Crises
In March 2020, the uncertain outlook for the United States in the face of the COVID-19 pandemic prompted extremely high demand for cash and near-cash assets. Amid intense selling pressure from investors, securities dealers were unable to fully absorb the high volume of trade orders into their inventory due to balance sheet capacity and funding constraints. As dealer capacity declined and demand for liquidity continued rising, volatility spread to the critical and normally highly liquid market for US Treasury securities, prompting the Federal Reserve to increase open market operations (March 12) and begin historically large purchases of US Treasuries (March …
United States: Money Market Mutual Fund Liquidity Facility, Carey K. Mott, Mallory Dreyer
United States: Money Market Mutual Fund Liquidity Facility, Carey K. Mott, Mallory Dreyer
Journal of Financial Crises
At the onset of the COVID-19 pandemic in March 2020, prime and tax-exempt money market funds (MMFs) faced increased demands for redemption. Meeting redemptions required MMFs to sell assets into increasingly illiquid markets. Using the emergency authority outlined in Section 13(3) of the Federal Reserve Act, the Board of Governors of the Federal Reserve established the Money Market Mutual Fund Liquidity Facility (MMLF), a facility similar in structure and purpose to a program that the Fed implemented in 2008 amidst the Global Financial Crisis (GFC). The MMLF extended nonrecourse loans to banks and their affiliates for the purchase from some …
Sweden: Corporate Bond Purchases, Carey K. Mott
Sweden: Corporate Bond Purchases, Carey K. Mott
Journal of Financial Crises
In the spring of 2020, corporate revenues in Sweden felt the direct effects of the coronavirus pandemic and the resulting public health measures. With future cash flows in question, many investors sold corporate debt for safe assets. Sweden's corporate bond market-particularly vulnerable to stress due to its heterogeneity, fragmentation, and lack of transparency-saw diminished liquidity. On March 19, 2020, the Sveriges Riksbank (Riksbank) announced it would purchase commercial paper and corporate bonds as part of a much larger bond-buying scheme, announced three days earlier, that included Swedish government, municipal, and covered bonds. It authorized the program under Chapter 6, Article …
Sweden: Commercial Paper Purchases, Carey K. Mott
Sweden: Commercial Paper Purchases, Carey K. Mott
Journal of Financial Crises
In March 2020, governments took measures to curb the spread of the COVID-19 pandemic that significantly impacted corporate revenues. The uncertainty surrounding the pandemic drove investors out of corporate securities and into safe assets, complicating the ability of Swedish nonfinancial corporations to finance their operations. As the volume of commercial paper issuance dropped, the Sveriges Riksbank (Riksbank) announced on March 19, 2020, it would purchase commercial paper and corporate bonds as part of a much larger bond-buying scheme that included Swedish government, municipal, and covered bonds. It authorized the program under Chapter 6, Article 5 of the Sveriges Riksbank Act. …
Israel: Corporate Bond Purchase Program, Natalie Leonard
Israel: Corporate Bond Purchase Program, Natalie Leonard
Journal of Financial Crises
By March 2020, the quickly spreading novel coronavirus began disrupting business activity and industry, generating uncertainty throughout the global economy. As financial panic spread, Israeli investors fled to liquidity, impacting equities, corporate bonds, and even Israeli treasury securities. As short-term horizon mutual funds experienced high withdrawals in the first few weeks of March, they were forced to sell corporate bonds. This increase in supply pushed corporate bond prices down, and yields spiked. Between March and May, domestic rating agencies downgraded 23 companies (12% of all rated companies), and by July 2020, yields remained in the double-digits for 23% of corporate …
Canada: Provincial Bond Purchase Program, Natalie Leonard
Canada: Provincial Bond Purchase Program, Natalie Leonard
Journal of Financial Crises
In the beginning of 2020, the outbreak of the novel coronavirus placed significant strain on financial markets and especially affected commodity-producing countries like Canada. As the broad economy contracted, oil-exports fell, and the government imposed public health restrictions to contain coronavirus, the Bank of Canada (BoC) announced emergency measures to ensure functioning of financial markets and to "reach companies and households and foster a robust recovery" (Poloz 2020, 1). One market that faced acute strain was the Canadian provincial bond market. The BoC announced the Provincial Bond Purchase Program (PBPP) through a notice published on April 15, 2020. The stated …
Canada: Corporate Bond Purchase Program, Sharon M. Nunn
Canada: Corporate Bond Purchase Program, Sharon M. Nunn
Journal of Financial Crises
The Bank of Canada (BoC) activated its Corporate Bond Purchase Program (CBPP) from May 26, 2020, to May 26, 2021, in response to liquidity strains in corporate bond markets that stemmed from economic uncertainty and the COVID-19 pandemic. Policymakers enacted the CBPP as part of a broader suite of policies meant to stabilize the Canadian economy. Through the CBPP, the BoC purchased Canadian corporate bonds through a tender process on the secondary market. The CBPP could hold up to CAD 10 billion (USD 7.7 billion) par value of eligible bonds issued by specific non-deposit-taking firms incorporated in Canada. The bonds …
Lessons Learned: Donald Kohn, Maryann Haggerty
Lessons Learned: Donald Kohn, Maryann Haggerty
Journal of Financial Crises
Kohn, an economist, is a 40-year veteran of the Federal Reserve System. He served as a member of the Board of Governors, and was vice chair, from 2002-2010, which included the years of the global financial crisis (GFC).
Editors’ Note: Fighting The Covid-19 Pandemic Financial Crisis, Andrew Metrick, Rosalind Z. Wiggins
Editors’ Note: Fighting The Covid-19 Pandemic Financial Crisis, Andrew Metrick, Rosalind Z. Wiggins
Journal of Financial Crises
Policy makers need decision support as they consider their options. For the past six years the Yale Program on Financial Stability (YPFS), which also publishes the Journal of Financial Crises, has researched and created content about the numerous interventions governments deployed during the Global Financial Crisis (2007-09) and other crises. With the onset of the COVID-19 crisis, we considered how we could best deploy our past research and skills to assist the current crisis-fighting efforts. We decided that we could best contribute to the effort by staying true to our mission to create, disseminate, and preserve knowledge about financial crises …