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Would a Bagehot style corporate bond backstop have helped counter the Great Recession?

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  • Duca, John V.
  • Murphy, Anthony

Abstract

In 2008, US corporate bond spreads almost reached Great Depression levels. The Fed was a lender of last resort in commercial paper, but not corporate bonds. The Fed’s FRB/US macroeconomic model is used to simulate the effects of the Fed successfully capping the BBB-10 year Treasury spread at 100 basis points above the 1970–2006 average spread. The simulations suggest that real GDP might have been one percentage point higher and the unemployment rate one-half percentage point lower.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 119 (2013)
Issue (Month): 3 ()
Pages: 351-353

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Handle: RePEc:eee:ecolet:v:119:y:2013:i:3:p:351-353

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Corporate bond spread; Lender of last resort; Financial frictions; Great Recession;

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References

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Cited by:
  1. Kettemann, Andreas & Krogstrup, Signe, 2014. "Portfolio balance effects of the Swiss National Bank’s bond purchase program," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 132-149.

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