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
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 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...
View Full Document