Wall Street vs. Main Street QE / Eric R. Sims, Jing Cynthia Wu.

Format:

Book

Author/Creator:

Sims, Eric R.

Contributor:

National Bureau of Economic Research.

Wu, Jing Cynthia.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27295.

NBER working paper series no. w27295

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

The Federal Reserve has reacted swiftly to the COVID-19 pandemic. It has resuscitated many of its programs from the last crisis by lending to the financial sector, which we refer to as "Wall Street QE." The Fed is now proposing to also lend directly to, and purchase debt directly from, non-financial firms, which we label "Main Street QE." Our paper develops a new framework to compare and contrast these different policies. In a situation in which financial intermediary balance sheets are impaired, such as the Great Recession, Main Street and Wall Street QE are perfect substitutes and both stimulate aggregate demand. In contrast, for situations like the one we are now facing due to COVID-19, where the production sector is facing significant cash flow shortages, Wall Street QE becomes almost completely ineffective, whereas Main Street QE can be highly stimulative.

Notes:

Print version record

June 2020.