Date of Award

Spring 2018

Degree Name

Bachelor of Arts

Major

Economics

First Advisor

Miguel Ramirez

Abstract

This paper examines the challenges policymaker (and firms) encounter when confronted by a recession at the zero lower bound, when traditional monetary policy is ineffective in the face of deteriorated balance sheets and high costs of credit. Within the larger body of literature, this paper focuses on the cost of credit during a recession, which constrains smaller firms from borrowing and investing, thus magnifying the contraction. Extending and revising a model originally developed by Walker (2010) and estimated by Pandey and Ramirez (2012), this study uses a Vector Error Correction Model to analyze the effects of relevant economic and financial factors on the cost of credit intermediation for small and large firms in order to test whether large firms have advantageous access to credit, especially during recessions. From the results, the paper assesses alternative ways in which the central bank can respond to a recession facing the zero lower bound.

Comments

Senior thesis completed at Trinity College for the degree of Bachelor of Arts in Economics.

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