Fed in Print
All Title Author Abstract Keywords
Bank Series Content Type Author JEL Classification Keyword

Working Paper Revision

Credit and Liquidity Policies during Large Crises


Abstract: We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of real and financial shocks, while COVID-19 also featured liquidity shocks. We study the state-dependent effects of credit and liquidity policies.

Keywords: credit spreads; liquidity; Great Recession; COVID-19;

JEL Classification: E6; G2;

https://doi.org/10.20955/wp.2020.035

Access Documents

File(s): File format is application/pdf https://s3.amazonaws.com/real.stlouisfed.org/wp/2020/2020-035.pdf
Description: Full Text

Authors

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2024-02-22

Number: 2020-035

Related Works