TY - JOUR
T1 - The great escape?a quantitative evaluation of the fed's liquidity facilities
AU - Negro, Marco Del
AU - Eggertsson, Gauti
AU - Ferrero, Andrea
AU - Kiyotaki, Nobuhiro
N1 - Funding Information:
National Science Foundation. The authors declare that they have no relevant
PY - 2017/3
Y1 - 2017/3
N2 - We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities and ask: can a shock to the liquidity of private paper lead to a collapse in short-Term nominal interest rates and a recession like the one associated with the 2008 US financial crisis? Once the nominal interest rate reaches the zero bound, what are the effects of interventions in which the government provides liquidity in exchange for illiquid private paper? We find that the effects of the liquidity shock can be large, and show some numerical examples in which the liquidity facilities of the Federal Reserve prevented a repeat of the Great Depression in the period 2008-2009. (JEL E13, E31, E43, E44, E52, E58, G01).
AB - We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities and ask: can a shock to the liquidity of private paper lead to a collapse in short-Term nominal interest rates and a recession like the one associated with the 2008 US financial crisis? Once the nominal interest rate reaches the zero bound, what are the effects of interventions in which the government provides liquidity in exchange for illiquid private paper? We find that the effects of the liquidity shock can be large, and show some numerical examples in which the liquidity facilities of the Federal Reserve prevented a repeat of the Great Depression in the period 2008-2009. (JEL E13, E31, E43, E44, E52, E58, G01).
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U2 - 10.1257/aer.20121660
DO - 10.1257/aer.20121660
M3 - Article
AN - SCOPUS:85017404793
SN - 0002-8282
VL - 107
SP - 824
EP - 857
JO - American Economic Review
JF - American Economic Review
IS - 3
ER -