Publication Type

Journal Article

Version

publishedVersion

Publication Date

4-2022

Abstract

We compare the interventions conducted by the Federal Reserve in response to the subprime and COVID–19 crises with respect to their effectiveness in reducing disaster risk. Using model-free measures of disaster risk derived from daily options data, we document that interventions in response to both crises reduced tail risks in domestic equity markets. The spillover effects of the two crises have been markedly dissimilar. While subprime interventions are generally characterized by negative spillovers to international equity markets, policy responses to the COVID–19 crisis are generally associated with positive spillovers. We interpret these results as consistent with the different degrees of protagonism by central banks in the two episodes, emphasizing the importance of a broader participation of monetary authorities in expanding their balance sheets to counteract the effects of major crises.

Keywords

COVID-19, disaster risk, monetary policy, quantitative easing

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

Areas of Excellence

Growth in Asia

Publication

Journal of International Money and Finance

Volume

122

First Page

1

Last Page

24

ISSN

0261-5606

Identifier

10.1016/j.jimonfin.2021.102543

Publisher

Elsevier

External URL

https://api.elsevier.com/content/abstract/scopus_id/85121246608

Additional URL

https://doi.org/10.1016/j.jimonfin.2021.102543

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