In late 2008, deteriorating economic conditions led the Federal Reserve to lower the federal funds rate to near zero and inject massive liquidity into the financial system through novel facilities. The combination of conventional and unconventional measures complicates the challenging task of...

This paper develops a nancial mechanism which integrates housing and the real econ- omy through housing-secured debt. In this environment, movements in home prices are ampli ed through both borrowers and banks' balance sheets, leading to a self-reinforcing credit/liquidity crunch. When placed...