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Government Policy, Credit Markets and Economic Activity

Listed author(s):
  • Lawrence Christiano
  • Daisuke Ikeda

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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File URL: http://www.nber.org/papers/w17142.pdf
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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
Handle: RePEc:nbr:nberwo:17142
Note: EFG
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  1. Saki Bigio, 2014. "Endogenous Liquidity and the Business Cycle," Working Papers 2014-24, Peruvian Economic Association.
  2. Zheng Liu & Pengfei Wang & Tao Zha, 2009. "Do Credit Constraints Amplify Macroeconomic Fluctuations?," Emory Economics 0910, Department of Economics, Emory University (Atlanta).
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  17. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "DSGE models for monetary policy analysis," FRB Atlanta CQER Working Paper 2010-02, Federal Reserve Bank of Atlanta.
  18. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2009. "Chained Credit Contracts and Financial Accelerators," IMES Discussion Paper Series 09-E-30, Institute for Monetary and Economic Studies, Bank of Japan.
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