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Broadly broadly speaking two types of unconventional

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Unformatted text preview: elow zero. (The Federal Reserve found itself in this situation after December 2008, as shown in Figure 5.) Under such circumstances, a policy that can reduce credit spreads can further increase aggregate demand (by shifting the IS curve to the right), despite the lack of room for any further reduction in the the policy rate. Broadly Broadly speaking, two types of “unconventional” central-bank policies can reduce credit spreads by shifting the supply of intermediation schedule XS to the right. One is the extension of credit to intermediaries by the central bank on easier terms than are available from private creditors; in particular, in the case that the relevant financing constraint is the existence of too-high margin requirements for private lending using assets held by the intermediaries as collateral, the central bank may choose to lend against that collateral with a lower margin requirement. Financial Intermediation and Macroeconomic Analysis 41 Ashcraft, Ashcraft, Gârleanu, and Pedersen (forthcoming) discuss the Federal Reserve’s Term Asset-Backed Lending Facility, which provided financing for private purchases of asset-backed securities, as an example...
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