Escaping from a Combination of Liquidity Trap and Credit Crunch

Frank Heinemann

No 2450, CESifo Working Paper Series from CESifo

Abstract: This brief exposition suggests that the Federal Reserve System temporarily guarantee a lower bound on stock prices in order to escape the current combination of liquidity trap and credit crunch. It shortly discusses reasons for this measure, consequences, and some alternatives. It is meant as a policy suggestion in case the recapitalization of banks, agreed upon in mid-October 2008, turns out to be insufficient for stabilizing financial markets and the downward spiral in asset prices resumes.

Keywords: financial crisis; monetary policy; liquidity trap; credit crunch; asset markets (search for similar items in EconPapers)
JEL-codes: E31 E44 E52 E58 G21 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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