This paper studies the effects of three financial shocks in the economy: a net-worth shock, an uncertainty or risk … shock, and a credit-spread shock. We argue that only the latter can push the nominal interest rate against its zero lower … bound. Further, a recessionary shock to the net worth or the credit spread generates a positive response for loans, which is …

. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to …

the price level to a temporary risk shock are permanent. Our theoretical discussion shows that adopting a credible long …