First, we had to deal with a system-wide liquidity shock of unprecedented magnitude which, if left unattended, would have developed into a liquidity crunch and, later, a disorderly contraction of the stock of broad money and nominal income. We addressed this formidable stress by resorting to what I will term the “monetary approach” to LOLR.
In this way, we sought to deter a contraction in the stock of bank-created money and to compensate for a decline in its velocity of circulation, which could otherwise have provoked a more severe fall in spending, employment and prices than what was observed in reality.