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

2017 ◽  
Vol 107 (3) ◽  
pp. 824-857 ◽  
Author(s):  
Marco Del Negro ◽  
Gauti Eggertsson ◽  
Andrea Ferrero ◽  
Nobuhiro Kiyotaki
Keyword(s):  
Interest Rates ◽  
Short Term ◽  
The Great Depression ◽  
Nominal Interest Rates ◽  
The Government ◽  
The One ◽  
Liquidity Frictions ◽  
Liquidity Shock ◽  
Zero Bound ◽  
Us Financial Crisis

We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities and ask: can a shock to the liquidity of private paper lead to a collapse in short-term nominal interest rates and a recession like the one associated with the 2008 US financial crisis? Once the nominal interest rate reaches the zero bound, what are the effects of interventions in which the government provides liquidity in exchange for illiquid private paper? We find that the effects of the liquidity shock can be large, and show some numerical examples in which the liquidity facilities of the Federal Reserve prevented a repeat of the Great Depression in the period 2008–2009. (JEL E13, E31, E43, E44, E52, E58, G01)

scholarly journals Was the New Deal Contractionary?

2012 ◽  
Vol 102 (1) ◽  
pp. 524-555 ◽  
Author(s):  
Gauti B Eggertsson
Keyword(s):  
United States ◽  
Interest Rate ◽  
Interest Rates ◽  
New Deal ◽  
The United States ◽  
Government Policies ◽  
Short Term ◽  
The Great Depression ◽  
Zero Bound ◽  
The New Deal

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? This paper shows that the answer is yes under certain “emergency” conditions. These emergency conditions—zero interest rates and deflation—were satisfied during the Great Depression in the United States. The New Deal, which facilitated monopolies and union militancy, was therefore expansionary in the model presented. This conclusion is contrary to a large previous literature. The main reason for this divergence is that this paper incorporates rigid prices and the zero bound on the short-term interest rate. JEL: E23, E32, E52, E62, J51, N12, N42

scholarly journals Dealing with Monetary Paralysis at the Zero Bound

2017 ◽  
Vol 31 (3) ◽  
pp. 47-66 ◽  
Author(s):  
Kenneth Rogoff
Keyword(s):  
Lower Bound ◽  
Interest Rates ◽  
Central Banks ◽  
Ordinary People ◽  
Short Term ◽  
Nominal Interest Rates ◽  
Paper Currency ◽  
Rate Policy ◽  
Massive Number ◽  
Zero Bound

Recently, the key constraint for central banks is the zero lower bound on nominal interest rates. Central banks fear that if they push short-term policy interest rates too deeply negative, there will be a massive flight into paper currency. This paper asks whether, in a world where paper currency is becoming increasingly vestigial outside small transactions (at least in the legal, tax compliant economy), there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live. Surprisingly, this question gets little attention compared to the massive number of articles that take the zero bound as given and look for out-of-the-box solutions for dealing with it. In an inversion of the old joke, it is a bit as if the economics literature has insisted on positing “assume we don't have a can opener,” without considering the possibility that we might be able to devise one. It makes sense not to wait until the next financial crisis to develop plans. Fundamentally, there is no practical obstacle to paying negative (or positive) interest rates on electronic currency and, as we shall see, effective negative rate policy does not require eliminating paper currency.

Late Nineteenth-Century American Retardation: A Neoclassical Analysis

1973 ◽  
Vol 33 (3) ◽  
pp. 581-607 ◽  
Author(s):  
Jeffrey G. Williamson
Keyword(s):  
Nineteenth Century ◽  
Interest Rates ◽  
Output Growth ◽  
Historical Research ◽  
Late Nineteenth Century ◽  
Real Output ◽  
The Past ◽  
The Great Depression ◽  
Nominal Interest Rates ◽  
Late Nineteenth

English growth experience from the 1860's to the 1890's has been the source of continued research and debate. Judged by the recent contributions of McCloskey, the intensity of the debate has diminished little over the past seventy-five years. The period has long been identified in the literature as the “Great Depression.” It has been well established that the decades up to 1896 were characterized by declining general price levels, declining nominal interest rates, and serious retardation in aggregate real output growth. These are not merely figments of historical research since they were subjects of contemporary observation as well.

scholarly journals Oil shocks and the zero bound on nominal interest rates

2013 ◽  
Vol 32 ◽  
pp. 941-967 ◽  
Author(s):  
Martin Bodenstein ◽  
Luca Guerrieri ◽  
Christopher J. Gust
Keyword(s):  
Interest Rates ◽  
Oil Shocks ◽  
Nominal Interest Rates ◽  
Zero Bound

scholarly journals The Missing Transmission Mechanism in the Monetary Explanation of the Great Depression

2013 ◽  
Vol 103 (3) ◽  
pp. 66-72 ◽  
Author(s):  
Christina D Romer ◽  
David H Romer
Keyword(s):  
Interest Rates ◽  
Detailed Analysis ◽  
Great Depression ◽  
Federal Reserve ◽  
Transmission Mechanism ◽  
Monetary Shocks ◽  
Real Interest Rates ◽  
The Great Depression ◽  
Nominal Interest Rates ◽  
Business Week

This paper examines the missing transmission mechanism in Friedman's and Schwartz's monetary explanation of the Great Depression. We review the challenge provided by the decline in nominal interest rates in the early 1930s, and show that the monetary explanation requires not just that there were expectations of deflation, but that they were caused by monetary contraction. Using a detailed analysis of Business Week magazine, we find evidence that monetary contraction and Federal Reserve policy contributed to expectations of deflation during the downturn. This suggests that monetary shocks may have depressed spending and output in part by raising real interest rates.

scholarly journals High-Frequency Estimates of the Natural Real Rate and Inflation Expectations

2021 ◽  
Vol 2021 (034) ◽  
pp. 1-32
Author(s):  
Alex Aronovich ◽  
◽  
Andrew Meldrum ◽  
Keyword(s):  
Interest Rates ◽  
High Frequency ◽  
Global Financial Crisis ◽  
Inflation Expectations ◽  
Study Analysis ◽  
Bond Yields ◽  
Short Term ◽  
Real Rate ◽  
Nominal Interest Rates ◽  
The Global Financial Crisis

We propose a new method of estimating the natural real rate and long-horizon inflation expectations, using nonlinear regressions of survey-based measures of short-term nominal interest rates and inflation expectations on U.S. Treasury yields. We find that the natural real rate was relatively stable during the 1990s and early 2000s, but declined steadily after the global financial crisis, before dropping more sharply to around 0 percent during the recent COVID-19 pandemic. Long-horizon inflation expectations declined steadily during the 1990s and have since been relatively stable at close to 2 percent. According to our method, the declines in both the natural real rate and long-horizon inflation expectations are clearly statistically significant. Our estimates are available at whatever frequency we observe bond yields, making them ideal for intraday event-study analysis--for example, we show that the natural real rate and long-horizon inflation expectations are not affected by temporary shocks to the stance of monetary policy.

scholarly journals Oil Shocks and the Zero Bound on Nominal Interest Rates

2010 ◽  
Vol 2010 (1009) ◽  
pp. 1-47
Author(s):  
Martin Bodenstein ◽  
◽  
Luca Guerrieri ◽  
Christopher J. Gust
Keyword(s):  
Interest Rates ◽  
Oil Shocks ◽  
Nominal Interest Rates ◽  
Zero Bound
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