Shadow banks typically fund their assets by issuing liabilities of shorter maturity that are close substitutes for bank deposits. The maturity mismatch between their assets and liabilities creates rollover risk that can trigger fire sales and systemic disruption. Plot the outstanding level of one such liability – asset-backed commercial paper (FRED code: ABCOMP) – from the start of 2002 to the end of 2007. Based on the plot, discuss how the use of asset-backed commercial paper influenced the financial crisis of 2007-2009?
Answer to relevant QuestionsExplain the costs of each of the following conditions, and explain who bears them. (LO1)a. Interest-rate instabilityb. Exchange-rate instabilityc. Inflationd. Unstable growthA central bank should remain vague about the relative importance it places on its various objectives. That way, it has the freedom to choose which objective to follow at any point in time.” Assess this statement in light ...Suppose the central bank in your country has price stability as its primary goal. Faced with a choice of having monetary policy decisions made by a well-qualified individual with an extremely strong dislike of inflation or ...Evaluate the following statement: “The Treaty of Maastricht helped solve the time consistency problem in monetary policy but not fiscal policy.” Do you think, in the interest of transparency, the Chair of the Federal Reserve Board should explain in detail the subtleties surrounding policy decisions? Why or why not?
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