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New Zealand’s emergency liquidity measures during the global financial crisis

Enzo Cassino, Aidan Yao

This article discusses the steps taken by the Reserve Bank to alleviate market stress and maintain market functioning during the international financial crisis of 2007–09. Our statistical analysis suggests that the emergency liquidity policies introduced during the crisis period narrowed bank funding spreads in the domestic money market by 5-7 basis points, on average, per announcement. We also find some evidence that these policies helped to reduce the volatility of money market spreads. Collectively, these policies had a material cumulative impact, probably going well beyond the simple announcement effects on money market conditions captured by our formal analysis. This is because some of the policies were taken deliberately in a pre-emptive manner, and more generally they helped to limit broader disruption to the economy’s access to credit during the recession.