During the subprime crisis, the U.S. Federal Reserve has been concerned
about widening spreads between the overnight inter-bank lending
rate such as the overnight index swap (OIS) and term London Inter-
Bank Offer Rates (LIBOR). Among the tools it has used to counter
the impact of the crisis, the innovative Term Auction Facility (TAF)
has attracted a lot of attention. We investigate the impact of TAF on
the LIBOR-OIS spread. We find that TAF has a clear initial effect on
the three-month LIBOR-OIS spread but no sustained effect. In addition,
TAF has no effect on the one-month LIBOR-OIS spread, casting
further doubt in the usefulness of TAF on reducing risk spreads. Since
the subprime crisis has also spilled across the interbank, commercial
paper and jumbo mortgage markets, we further examine the lead-lag
relationship among LIBOR-OIS, commercial paper and jumbo spreads
and the volatility transmission effects among them. For the period
before the crisis, we find that the three markets behave independently
and do not influence each other. For the subprime crisis period, however,
we find that multi-directional lead-lag relationships among these
markets and time-varying volatilities across the three markets are significantly
correlated.
JEL classification: G1; G14
Key words: Subprime crisis; Term Auction Facility; LIBOR-OIS spread;
Commercial paper spread; Jumbo spread
학술대회/행사
학술대회안내
[2008년 제 4차] The impact of a new term auction facility on LIBOR-
작성자 : 관리자
조회수 : 1018
게시일 :
2008-12-11