Creator

• Buera, Francisco
• Nicolini, Juan Pablo

Series

• Staff report (Federal Reserve Bank of Minneapolis. Research Department)

Issue number

• 540

Date created

• 2017-02-02

Abstract

• We study a model with heterogeneous producers that face collateral and cash-in-advance constraints. A tightening of the collateral constraint results in a credit-crunch-generated recession that reproduces several features of the financial crisis that unraveled in 2007 in the United States. The model can be used to study the effects of the credit-crunch on the main macroeconomic variables and the impact of alternative policies. The policy implications regarding forward guidance are in contrast with the prevalent view in most central banks, based on the New Keynesian explanation of the liquidity trap.

Subject (JEL)

• E52 - Monetary Policy
• E58 - Central Banks and Their Policies
• E44 - Financial Markets and the Macroeconomy
• E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

Keyword

• Monetary policy
• Ricardian equivalence
• Liquidity trap
• Collateral constraints
• Credit crunch

Related information

• Published in American Economic Journal: Macroeconomics (vol. 12, no. 3, July 2020, pp. 110-138), https://doi.org/10.1257/mac.20170040.

  An earlier version of this Staff Report circulated as Working Paper 714.

• Online Appendix

Date modified

• 06/30/2020

Corporate Author

• Federal Reserve Bank of Minneapolis. Research Department

Publisher

• Federal Reserve Bank of Minneapolis

Resource type

• Research Paper

DOI

•  https://doi.org/10.21034/sr.540

License

• Creative Commons BY-NC Attribution-NonCommercial 4.0 International

In Collection:

• Staff Reports

Zipped Files

Download a zip file that contains all the files in this work.

Thumbnail	Title	Date Uploaded	Visibility	Actions
	sr540.pdf	2019-05-17	Public	Download