Working Paper

Federal Reserve policies and financial market conditions during the crisis

Abstract: During the recent financial crisis, the Federal Reserve implemented a series of extraordinary and unconventional policies to alleviate the impact of the crisis on financial markets and the economy. In this paper, we examine the effects of these policies on broad financial market conditions, explicitly taking into account that policy was endogenously determined in response to prevailing financial market and economic conditions. We find that the Fed was more likely to initiate or expand new programs when financial market conditions were tighter than usual and economic conditions deteriorating. We also find that the Fed?s policies improved broad financial market conditions significantly at announcement and that the improvements were associated primarily with program initiations and expansions.

Keywords: Federal Reserve Act; Financial crises - United States;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2011

Number: WP-2011-04