In what ways can nonconventional monetary policy affect the real interest rate for investments when the economy reaches the zero lower bound? How are credit spreads affected? (Select all that apply.)
A. By purchasing private assets, the central bank reduces financial frictions in specific asset classes and, therefore, the real interest rate for investments in those markets. Credit spreads are reduced directly as financial frictions are reduced.
B. By purchasing government securities, the central bank directly lowers the safe policy real interest rate at any given level of financial frictions. Credit spreads are not affected directly.
C. By providing forward guidance, the central banks acts to reduce financial frictions for any given current safe policy rate, thereby lowering the real interest rate for investments. Credit spreads are reduced directly as financial frictions are reduced.
D. By providing liquidity to key credit markets, the central bank can directly reduce financial frictions, which lowers the real interest rate for investments at any given safe policy interest rate. Credit spreads are reduced directly as financial frictions are reduced.
