A QUANTIFICATION OF THE 2008-2009 US BAILOUT PACKAGE
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By: Cicero I. LIMBEREA
JEL: M1, M3
Keywords: credit crunch, ISLM equilibrium, demand shock, Keynesian multiplier, monetary policy, fiscal policy, mortgage prepayments changes, MBS, velocity of money supply, long term equilibrium of exchange rates
By examining the credit crunch causes and effects, this paper reflects on the necessity of the banks bailout package and its alternatives and quantifies a maximum non-inflationary bailout amount which is unlikely to cause permanent adjustments in the long term (trade-weighted) exchange rate equilibrium level of the US dollar. Furthermore it determines that the current bailout amounts are less than the maximum non-inflationary bailout amount and determines that to resolve the underlying credit crunch problem, an increase in non-bank bailout M1 and/or a tax reduction is necessary.
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