The Federal Reserve’s Response to the 1987 Market Crash (U.S. Historical)

Authors

Kaleb B. Nygaard, Yale School of ManagementFollow

Document Type

Case Study

Case Series

Credit Guarantee Programs

JEL Codes

G01, G28

Abstract

The S&P 500 lost 10% the week ending Friday, October 16, 1987, and lost an additional 20% the following Monday, October 19, 1987. The date would be remembered as Black Monday. The Federal Reserve (the Fed) responded to the crash in four distinct ways: (1) issuing a public statement promising to provide liquidity, as needed, “to support the economic and financial system”; (2) providing support to the Treasury securities market by injecting in-high-demand maturities into the market via reverse repurchase agreements; (3) allowing the federal funds rate to fall from 7.5% to 7.0% and below; and (4) intervening directly to allow the rescue of the largest options clearing firm in Chicago.

Recommended Citation

Nygaard, Kaleb B. (2020) "The Federal Reserve’s Response to the 1987 Market Crash (U.S. Historical)," Journal of Financial Crises: Vol. 2 : Iss. 3, 116-130.
Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/4

Date Revised

2020-10-08