Wall Street vs. Main Street QE

Eric Sims () and Jing Cynthia Wu

No 27295, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The Federal Reserve has reacted swiftly to the COVID-19 pandemic. It has resuscitated many of its programs from the last crisis by lending to the financial sector, which we refer to as “Wall Street QE.” The Fed is now proposing to also lend directly to, and purchase debt directly from, non-financial firms, which we label “Main Street QE.” Our paper develops a new framework to compare and contrast these different policies. In a situation in which financial intermediary balance sheets are impaired, such as the Great Recession, Main Street and Wall Street QE are perfect substitutes and both stimulate aggregate demand. In contrast, for situations like the one we are now facing due to COVID-19, where the production sector is facing significant cash flow shortages, Wall Street QE becomes almost completely ineffective, whereas Main Street QE can be highly stimulative.

JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (3)

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