Abstract
This paper examines the effectiveness of several of the Fed’s unconventional monetary policies from 2007 to 2010 by comparing interest rate spreads with forecast estimates based on either the pure expectations hypothesis or the preferred habitat theory. We find that the effectiveness of these policies are similar to other studies in that the liquidity provided by the Fed did not have immediate or significant effects on interest rate spreads. These results are consistent with several studies that point toward counter party risk, not lack of liquidity, as the problem in financial markets at the time.
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