The Impact Of Unconventional Monetary Policy On Firm Financing

(Before It's News)

by Philadelphia Fed

– this post authored by Nathan Foley-Fisher, Rodney Ramcharan, and Edison Yu

In response to the financial crisis and the weak economy, the federal funds rate has been at the zero lower bound since December 2008. To help overcome the zero lower bound constraint and to stimulate economic activity, the Federal Reserve and other central banks have implemented a number of unconventional policies, including a series of large-scale asset purchases or quantitative easings (QEs). These policies are in part intended to work around the zero lower bound constraint by directly buying assets, such as U.S. Treasury bonds and mortgage-backed securities, to offset disruptions in private sector intermediation in the aftermath of the financial crisis and stimulate the economy (Cahill et al. (2013), Gertler and Karadi (2011), Krishnamurthy and Vissing-Jorgensen (2011), and Shleifer and Vishny (2011)).

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