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Government Policy, Credit Markets and Economic Activity

Lawrence Christiano and Daisuke Ikeda

No 17142, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E42 E58 E63 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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