What question did this study set out to answer?

To assess whether shocks to private asset liquidity can trigger zero-bound recessions and evaluate the effectiveness of central bank emergency liquidity interventions.

March 1, 2017American Economic Review

The Great Escape? A Quantitative Evaluation of the Fed's Liquidity Facilities

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Authors

MNMarco Del NegroFederal Reserve Bank of New York GEGauti B. EggertssonJohn Brown University AFAndrea FerreroUniversity of Oxford

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Implication

Macroeconomic modeling study finds that Federal Reserve liquidity facilities mitigated 2008 crisis effects, indicating emergency liquidity swaps prevented a repeat of the Great Depression.

Key Points

To assess whether shocks to private asset liquidity can trigger zero-bound recessions and evaluate the effectiveness of central bank emergency liquidity interventions.
Incorporated liquidity frictions into a standard dynamic stochastic general equilibrium (DSGE) model featuring nominal and real rigidities.
Modeled a severe liquidity shock affecting private commercial paper driving short-term nominal interest rates to the zero lower bound.
Numerically simulated counterfactual policy interventions where the central bank exchanged liquid government paper for illiquid private assets.
Liquidity shocks in private asset markets generate severe macroeconomic contractions, driving short-term nominal interest rates down to the zero lower bound.
Numerical counterfactual evaluations indicate that Federal Reserve emergency liquidity facilities in 2008–2009 successfully averted an economic collapse comparable to the Great Depression.

Cite This Study

Negro et al. (2017) studied this question.

synapsesocial.com/papers/6a15817d79ff98d0de4eba75 https://doi.org/10.1257/aer.20121660

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Implication

Macroeconomic modeling study finds that Federal Reserve liquidity facilities mitigated 2008 crisis effects, indicating emergency liquidity swaps prevented a repeat of the Great Depression.

The Great Escape? A Quantitative Evaluation of the Fed's Liquidity Facilities

Discussion

Member takes

Implication

Key Points

Cite This Study

The Great Escape? A Quantitative Evaluation of the Fed's Liquidity Facilities

Discussion

Member takes

Implication

Key Points

Cite This Study

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