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The authors develop a canonical framework to think about credit market frictions and aggregate economic activity in the context of the current crisis. They use the framework to address two issues in particular: first, how disruptions in financial intermediation can induce a crisis that affects real activity; and second, how various credit market interventions by the central bank and the Treasury of the type they have seen recently, might work to mitigate the crisis. They make use of earlier literature to develop their framework and characterize how very recent literature is incorporating insights from the crisis.
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