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Precautionary reserves and the interbank market
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Ashcraft, Adam, McAndrews, James and Skeie, David (2011) Precautionary reserves and the interbank market. Journal of Money, Credit and Banking, 43 (s2). pp. 311-348. doi:10.1111/j.1538-4616.2011.00438.x ISSN 0022-2879.
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Official URL: http://dx.doi.org/10.1111/j.1538-4616.2011.00438.x
Abstract
Extreme disruptions in the interbank market severely hampered the broader financial system during the 2007–08 financial crisis. We use Fedwire data to estimate fed funds trades and track banks’ intraday balances. We show empirical evidence of banks’ precautionary holding of reserves and reluctance to lend linked to documented extreme fed funds rate volatility, including the fed funds rate spiking above the discount rate and crashing to zero. We develop a model of constrained banks that makes new predictions and provides a unified explanation for the stark anomalies during the crisis, our empirical findings, and previous stylized facts from normal times.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | Journal of Money, Credit and Banking | ||||||||
Publisher: | Wiley-Blackwell Publishing, Inc. | ||||||||
ISSN: | 0022-2879 | ||||||||
Official Date: | October 2011 | ||||||||
Dates: |
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Volume: | 43 | ||||||||
Number: | s2 | ||||||||
Page Range: | pp. 311-348 | ||||||||
DOI: | 10.1111/j.1538-4616.2011.00438.x | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access |
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