Transfers Plus Open-Market Purchases: a Remedy for Recession

Laurence Seidman and Kenneth Lewis

No 04-02, Working Papers from University of Delaware, Department of Economics

Abstract: This paper simulates the use of transfers to households plus central-bank open-market purchases to generate a recovery of a low-interest-rate economy from a negative demand shock. Transfers to households are automatically triggered in recession; the prescribed anti-recession transfer ratio is proportional to the unemployment gap. Three alternative complementary monetary policies that the Federal Reserve might decide to implement are considered: standard, moderate, and aggressive. The simulations suggest that transfers plus open market purchases are likely to be an effective remedy for such a recession while limiting potential adverse impacts on inflation and government debt held by the non-central-bank public.

Keywords: Macroecomics; Recession (search for similar items in EconPapers)
Pages: 34 pages
Date: 2004
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-mac and nep-mon
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