Tuesday, December 30, 2008


The current crisis, which started in the housing and financial sectors, has now led to a
strong fall in aggregate demand. There are indications that this fall could be larger than in
any period since the Great Depression. A successful policy package should address both the
financial crisis and the fall in aggregate demand, and thus, should have two components: one,
aimed at getting the financial system back to health; the other, aimed at increasing aggregate
demand. There are obvious interactions and synergies between the two. Financial measures,
from recapitalization to asset purchases, have important implications for credit flows and
aggregate demand. Measures to support aggregate demand, for example by helping
homeowners and improving the housing market, have clear implications for the health of
financial institutions. Nevertheless, our focus in this note will be primarily on measures
aimed at sustaining aggregate demand. (Financial measures have been, and will be, the
subject of other notes.)
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>Derivative Strategy 30th Dec 08

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Derivative Strategy 30th Dec 08