Department of Economics

Money-Multiplier Shocks in a Credit-View Model

Department of Economics

University of Delaware

Working Paper #2010-05

Money-Multiplier Shocks in a Credit-View Model

Burton A. Abrams

ABSTRACT

The financial crisis and recession of 2008-2010 have witnessed the biggest reduction in money-supply multipliers in U.S. history. In contrast to what occurred during the Great Depression, the Fed has avoided decreases in monetary aggregates by dramatically increasing the monetary base. A variation of the Bernanke-Blinder credit-view model is shown to reveal that holding the money supply constant following an autonomous fall in the money multiplier is insufficient to prevent aggregate demand from falling. This helps to explain the severity of the 2008-2010 recession despite growing monetary aggregates and expansionary fiscal policy.

JEL Codes: F41, E51

Keywords: credit-view model, monetary policy, money-supply model

The Lerner College is home to a state-of-the-art financial trading facility, the $1.4 million student-led Blue Hen Investment Fund, a student-managed restaurant and hotel, a high-technology development center of a global bank and a start-up experience for students with new business ideas.

Lerner College faculty - like Anu Sivaraman, who is among Social Media Marketing Magazine’s “Top 100 Marketing Professors on Twitter” and MBAprograms.org’s “Top 50 Marketing Professors on Twitter” - are thought leaders who command attention from influential business audiences, economists and policy makers.

All Lerner College departments offer experience-driven learning and emphasize evidence-based analytics methods to enrich the student experience. Here, finance students visit New York City’s financial districts for a first-hand look at markets trading and to meet with UD alumni.

Charles W. Horn, AS75, and wife Patricia, recently made a $3 million commitment to enhance and expand entrepreneurial studies.

  • Alfred Lerner College of Business & Economics
    303 Alfred Lerner Hall  •  Newark, DE 19716  •  USA  •  ©