Money-Multiplier Shocks in a Credit-View Model

Burton Abrams

No 10-05, Working Papers from University of Delaware, Department of Economics

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

Keywords: credit-view model; monetary policy; money-supply model (search for similar items in EconPapers)
JEL-codes: E51 F41 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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