This working paper was written by Chao Gu (University of Missouri), Guido Menzio (New York University and NBER), Randall Wright (Zhejiang University, University of Wisconsin - Madison and NBER) and Yu Zhu (Bank of Canada).During the financial crisis, relatively centralized markets functioned...

We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities, explicitly incorporating the zero bound on the short-term nominal interest rate. Within this framework, we ask: Can a shock to the liquidity of private paper lead to a collapse in short-term...

We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities, explicitly incorporating the zero bound on the short-term nominal interest rate. Within this framework, we ask: Can a shock to the liquidity of private paper lead to a collapse in short-term...