Government Policy, Credit Markets and Economic Activity
Lawrence Christianoyand Daisuke Ikedaz
November 3, 2010
The US government has recently conducted large scale purchases of assets and implemented policies that reduced the cost of funds to Financial institutions. Arguably these policies have helped to correct credit market dysfunctions, allowing interest rate spreads to shrink and output to begin a (tentative) recovery. We study four models of financial frictions which provide different ways of understanding the channels by which policies might have had these effects.