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Would a Bagehot style corporate bond backstop have helped counter the Great Recession?

John Duca and Anthony Murphy ()

Economics Letters, 2013, vol. 119, issue 3, 351-353

Abstract: In 2008, US corporate bond spreads almost reached Great Depression levels. The Fed was a lender of last resort in commercial paper, but not corporate bonds. The Fed’s FRB/US macroeconomic model is used to simulate the effects of the Fed successfully capping the BBB-10 year Treasury spread at 100 basis points above the 1970–2006 average spread. The simulations suggest that real GDP might have been one percentage point higher and the unemployment rate one-half percentage point lower.

Keywords: Corporate bond spread; Lender of last resort; Financial frictions; Great Recession (search for similar items in EconPapers)
JEL-codes: E44 E50 N12 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:eee:ecolet:v:119:y:2013:i:3:p:351-353