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An overview of the Fed's new credit policy tools and their cushioning effect on the COVID-19 recession

Author

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  • Bordo, Michael D.
  • Duca, John V.

Abstract

The economics literature lacks articles that provide a broad roadmap—let alone a logical explanation—of the new set of Federal Reserve policy tools that were created to counter the COVID-19 recession. This study provides an overview of the motivation for these new credit-easing programs—namely to damp feedback mechanisms and channels that would otherwise amplify the downturn and impede a subsequent recovery. The study then briefly assesses the impact of the new policy tools and addresses the risks they might pose. In addition, the new credit easing tools are put into historical context through a discussion of their development as part of the Fed's evolving and expanding role in countering financial crises.

Suggested Citation

  • Bordo, Michael D. & Duca, John V., 2021. "An overview of the Fed's new credit policy tools and their cushioning effect on the COVID-19 recession," Journal of Government and Economics, Elsevier, vol. 3(C).
    • Handle: RePEc:eee:jogoec:v:3:y:2021:i:c:s2667319321000136
    DOI: 10.1016/j.jge.2021.100013
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    Citations

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    Cited by:

    1. Michael D. Bordo & John V. Duca, 2023. "Broad Divisia Money and the Recovery of U.S. Nominal GDP from the COVID-19 Recession," Working Papers 319, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. Xu, Hui & Pennacchi, George G., 2023. "Benchmarking the effects of the Fed's Secondary Market Corporate Credit Facility using Yankee bonds," Journal of Financial Markets, Elsevier, vol. 64(C).
    3. Odusami, Babatunde O. & Mansur, Iqbal, 2022. "Economic fundamentals, policy responses, and state-level municipal bond sensitivity to COVID-19 prevalence," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    4. Michael D. Bordo & John V. Duca, 2023. "Money Matters: Broad Divisia Money and the Recovery of Nominal GDP from the COVID-19 Recession," Working Papers 2306, Federal Reserve Bank of Dallas.
    5. S. Belgin Akçay & Mert Akyüz, 2024. "Why Did House Prices Go Up During COVID-19 Pandemic? Policy-Driven or Market-Driven?," International Real Estate Review, Global Social Science Institute, vol. 27(2), pages 303-328.

    More about this item

    Keywords

    Financial crises; Federal reserve; Credit easing; Lender of last resort; Corporate bonds; Corporate bond facility; Municipal bonds;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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