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Government Policy, Credit Markets and Economic Activity

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  • Lawrence Christiano
  • Daisuke Ikeda

Abstract

The US government has recently conducted large scale purchases of assets and implemented policies that reduced the cost of funds to financial institutions. Arguably these policies have helped to correct credit market dysfunctions, allowing interest rate spreads to shrink and output to begin a recovery. We study four models of financial frictions which explore different channels by which these effects might have occured. Recent events have sparked a renewed interest in leverage restrictions and the consequences of bailouts of the creditors of banks with under-performing assets. We use two of our models to consider the welfare and other effects of these policies.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17142.

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Date of creation: Jun 2011
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Handle: RePEc:nbr:nberwo:17142

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  2. Kozo Ueda, 2010. "Banking globalization and international business cycles," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 58, Federal Reserve Bank of Dallas.
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  5. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2013. "Capital Injection, Monetary Policy, and Financial Accelerators," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 101-145, June.
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Cited by:
  1. Kapetanios, George & Mumtaz, Haroon & Stevens, Ibrahim & Theodoridis, Konstantinos, 2012. "Assessing the economy-wide effects of quantitative easing," Bank of England working papers, Bank of England 443, Bank of England.
  2. Villa, Stefania, 2013. "Financial frictions in the euro area: a Bayesian assessment," Working Paper Series, European Central Bank 1521, European Central Bank.
  3. Jaromir Benes & Michael Kumhof, 2011. "Risky Bank Lending and Optimal Capital Adequacy Regulation," IMF Working Papers 11/130, International Monetary Fund.
  4. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2012. "Financial Intermediation, Exchange Rates, and Unconventional Policy in an Open Economy," NBER Working Papers 18431, National Bureau of Economic Research, Inc.
  5. Kirchner, Markus & van Wijnbergen, Sweder, 2012. "Fiscal deficits, financial fragility, and the effectiveness of government policies," Discussion Papers 20/2012, Deutsche Bundesbank, Research Centre.
  6. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 102, Bank of Italy, Economic Research and International Relations Area.

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