Central banks should use direct lending in shocks – BIS paper
Lending to firms directly could reduce welfare loss during financial shocks, researchers say
Direct central bank lending to firms may be a more effective tool than short-term interest rates during a financial shock, a paper published by the Bank of international Settlements argues.
“Credit policy should be deployed before the interest rate reaches the effective lower bound,” Fiorella De Fiore and Oreste Tristani write. “Interest rate cuts instead should be considered only when the scope for credit policy is exhausted.”
De Fiore and Tristani study the optimal combination of interest
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