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Alternatively alternatively the central bank may

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Unformatted text preview: of a policy of this kind and present evidence of its success at reducing the spreads associated with asset-backed securities eligible for the program. Such a policy can relax the constraint on the size of intermediary balance sheets resulting from limited capital in the intermediary sector, by allowing increased increased leverage. Alternatively, Alternatively, the central bank may directly purchase debt claims issued by private borrowers, so that total credit extended to the private sector can exceed the size of intermediary balance sheets. Examples of policies of this kind during the recent crisis include the Fed’s purchases of commercial paper through its Commercial Commercial Paper Funding Facility and its purchases of mortgage-backed securities rities and agency debt. On the motivation for and effects of these programs, see, for example, Adrian, Kimbrough, and Marchioni (2010), Gagnon, Raskin, Remache, and Sack (2010), and in this journal Kacperczyk and Schnabl (2010). In this case as well, the supply of intermediation XS is shifted to the right even though the equilibrium relation between the credit spread and the quantity of risky assets that can be hel...
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