Unformatted text preview: ese features
is now well underway. Adrian and Shin (forthcoming b) and Gertler and Kiyotaki
(forthcoming) provide surveys of recent work in this area. Here, I sketch a basic
version of such a model, show how it can be used to interpret the recent crisis,
and then discuss some implications of a model of this kind for monetary policy. A
complete monetary dynamic stochastic general equilibrium model based on the
approach sketched here is developed in Cúrdia and Woodford (2009). Credit and Economic Activity: A Market-Based Approach
The theory sketched here is appropriate to a market-based financial system in
which the most important marginal suppliers of credit are no longer commercial
banks and in which deposits subject to reserve requirements are no longer the most
important marginal source of funding even for commercial banks.
Macroeconomics with a Single Interest Rate
It is useful to begin by recalling how interest-rate policy affects aggregate
activity in a conventional model that...
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