The framework proposed here differs from that of

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Unformatted text preview: e relation that I call the IS curve as the “commodities and credit curve” instead, precisely because it is shifted by credit-supply shocks in addition to the usual determinants of the IS curve. The framework proposed here differs from that of Bernanke and Blinder primarily in offering a different model of the supply of intermediation. 36 Journal of Economic Perspectives to to borrow, and hence requiring further asset sales. The result is a vicious spiral that under some circumstances can substantially reduce credit supply. The resulting contraction of aggregate output may result in further losses to the banks, further reducing reducing their capital, and hence tightening credit supply even more. The Most Recent U.S. Credit Cycle Understanding Understanding variations in financial conditions over the most recent credit cycle requires attention to the behavior of multiple interest rates, not just the federal funds rate that is targeted by the Federal Reserve. As shown in Figure 5, the Fed Open Market Com...
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This note was uploaded on 11/23/2013 for the course ECON 11837649 taught by Professor Batchelder during the Spring '10 term at Pepperdine.

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