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Wall Street QE vs. Main Street Lending

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  • Cardamone, Dario
  • Sims, Eric
  • Wu, Jing Cynthia

Abstract

Monetary and fiscal authorities reacted swiftly to the COVID-19 pandemic by purchasing assets (or “Wall Street QE”) and lending directly to non-financial firms (or “Main Street Lending”). Our paper develops a new framework to compare and contrast these different policies. For the Great Recession, characterized by impaired balance sheets of financial intermediaries, Main Street Lending and Wall Street QE are perfect substitutes and both stimulate aggregate demand. In contrast, for the COVID-19 recession, where non-financial firms faced significant cash flow shortages, Wall Street QE is almost completely ineffective, whereas Main Street Lending can be highly stimulative.

Suggested Citation

  • Cardamone, Dario & Sims, Eric & Wu, Jing Cynthia, 2023. "Wall Street QE vs. Main Street Lending," European Economic Review, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:eecrev:v:156:y:2023:i:c:s0014292123001046
    DOI: 10.1016/j.euroecorev.2023.104475
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    References listed on IDEAS

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    1. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
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    8. Mark Gertler & Peter Karadi, 2013. "QE 1 vs. 2 vs. 3. . . : A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 5-53, January.
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    Cited by:

    1. Mendicino, Caterina, 2024. "Wall street QE vs. main street lending: A comment," European Economic Review, Elsevier, vol. 161(C).

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