Asset Fire Sales and Credit Easing

Andrei Shleifer and Robert Vishny

No 15652, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a January 2009 lecture on the financial crisis, Federal Reserve Chairman Bernanke advocated a new Fed policy of credit easing, defined as a combination of lending to financial institutions, providing liquidity directly to key credit markets, and buying of long term securities. We show that Bernanke's analysis and recommendations can be naturally considered in a model of "unstable banking," which relies on two mechanisms: 1) fire sales reduce asset prices below fundamental values, and 2) financial institutions prefer speculation to new lending when markets are dislocated. We analyze credit easing and compare it to alternative government interventions during the crisis.

JEL-codes: E51 E58 G21 (search for similar items in EconPapers)
Date: 2010-01
Note: CF EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Published as Andrei Shleifer & Robert W. Vishny, 2010. "Asset Fire Sales and Credit Easing," American Economic Review, American Economic Association, vol. 100(2), pages 46-50, May.

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