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The explosive growth of the ABCP market between 2004 and 2007: A "search for yield" story

Lysandrou, P. & Shabani, M. (2018). The explosive growth of the ABCP market between 2004 and 2007: A "search for yield" story. Journal of Post Keynesian Economics, 41(4), pp. 526-546. doi: 10.1080/01603477.2018.1494504


The years immediately preceding the financial crisis of 2007 witnessed an explosive growth in the supplies both of the long-term securities issued by the shadow banking entities, the asset-backed securities (ABSs) and collateralized debt obligations (CDOs), and of the short-term securities issued by these entities, notably asset-backed commercial paper (ABCP). Although there is now some acknowledgment that the search for yield was the major driver of ABS and CDO growth in the United States, the same is not true of the U.S. ABCP market where other factors such as regulatory arbitrage on the part of banks or the safety and liquidity concerns of institutional investors are seen as having been the more important growth driving force. This article argues that the search for yield did play a crucial role in U.S. ABCP growth between 2004 and 2007. To back up this argument, the article points to four variables that were closely correlated with this growth: the federal funds rate; U.S. money market mutual funds asset holdings; the change in the geographical breakdown of the institutions supplying ABCP; and, finally, the change in the program breakdown of the ABCP market.

Publication Type: Article
Publisher Keywords: Asset backed commercial paper, search for yield
Subjects: H Social Sciences > HG Finance
Departments: School of Policy & Global Affairs > International Politics
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