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Full-Text Articles in Economic Theory
Monetary Policy At The Zero Lower Bound: Implications Of High Costs Of Credit During A Recession, Louisa Kammerer
Monetary Policy At The Zero Lower Bound: Implications Of High Costs Of Credit During A Recession, Louisa Kammerer
Senior Theses and Projects
This paper examines the challenges policymaker (and firms) encounter when confronted by a recession at the zero lower bound, when traditional monetary policy is ineffective in the face of deteriorated balance sheets and high costs of credit. Within the larger body of literature, this paper focuses on the cost of credit during a recession, which constrains smaller firms from borrowing and investing, thus magnifying the contraction. Extending and revising a model originally developed by Walker (2010) and estimated by Pandey and Ramirez (2012), this study uses a Vector Error Correction Model to analyze the effects of relevant economic and financial …