ECB researcher views liquidity shocks through enhanced DGE lens

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A working paper published by the European Central Bank (ECB) on March 7 finds that the effect of liquidity shocks on the economy could be greater than that implied by standard models.

In Liquidity constraints, risk premia, and the macroeconomic effects of liquidity shocks, author Ivan Jaccard develops a dynamic general equilibrium (DGE) model that allows for the propagation of liquidity shocks. He finds that the results depend crucially on asset pricing assumptions – models that fail to

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