Asset Fire Sales and Credit Easing
In a January 2009 lecture on the financial crisis, Federal Reserve Chairman Bernanke advocated a new Fed policy of credit easing, defined as a combination of lending to financial institutions, providing liquidity directly to key credit markets, and buying of long term securities. We show that Bernanke's analysis and recommendations can be naturally considered in a model of "unstable banking," which relies on two mechanisms: 1) fire sales reduce asset prices below fundamental values, and 2) financial institutions prefer speculation to new lending when markets are dislocated. We analyze credit easing and compare it to alternative government interventions during the crisis.
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Volume (Year): 100 (2010)
Issue (Month): 2 (May)
Pages: 46-50
| Handle: | RePEc:aea:aecrev:v:100:y:2010:i:2:p:46-50 |
| Note: | DOI: 10.1257/aer.100.2.46 |
| Contact details of provider: | Web page: https://www.aeaweb.org/aer/Email: More information through EDIRC
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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