Identifying the effects of a lender of last resort on financial markets: Lessons from the founding of the fed
Asaf Bernstein,
Eric Hughson and
Marc D. Weidenmier
Journal of Financial Economics, 2010, vol. 98, issue 1, 40-53
Abstract:
We use the founding of the Federal Reserve to identify the effects of a lender of last resort. We examine stock return and interest rate volatility during September and October, when markets were vulnerable because of financial stringency from the harvest. Stock volatility fell by 40% and interest rate volatility by more than 70% following the monetary regime change. The drop is insignificant if major panic years are omitted from the analysis, however. Because business cycle downturns occurred in the same year as financial crises, our results suggest that the existence of the Federal Reserve reduced liquidity risk.
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-405X(10)00078-4
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:98:y:2010:i:1:p:40-53
Access Statistics for this article
Journal of Financial Economics is currently edited by G. William Schwert
More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().