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Money-Multiplier Shocks in a Credit-View Model

Author

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  • Burton A. Abrams

    () (Department of Economics,University of Delaware)

Abstract

The financial crisis and recession of 2008-2010 have witnessed the biggest reduction in money-supply multipliers in U.S. history. In contrast to what occurred during the Great Depression, the Fed has avoided decreases in monetary aggregates by dramatically increasing the monetary base. A variation of the Bernanke-Blinder credit-view model is shown to reveal that holding the money supply constant following an autonomous fall in the money multiplier is insufficient to prevent aggregate demand from falling. This helps to explain the severity of the 2008-2010 recession despite growing monetary aggregates and expansionary fiscal policy

Suggested Citation

  • Burton A. Abrams, 2010. "Money-Multiplier Shocks in a Credit-View Model," Working Papers 10-05, University of Delaware, Department of Economics.
  • Handle: RePEc:dlw:wpaper:10-05.
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    File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2010/UDWP2010-05.pdf
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    More about this item

    Keywords

    credit-view model; monetary policy; money-supply model;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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