The nineteenth-century economist Walter Bagehot maintained that in order to prevent bank panics, a central bank should provide liquidity at a very high rate of interest. However, most of the theoretical literature on liquidity provision suggests that central banks should lend at an interest rate...

The terror-attack hit the western world in a situation of a sharp cyclical downturn in the USA, Europe and Japan. Mainly because of increased uncertainty the downturn will be intensified by the attack. Immediately after the attack US monetary and fiscal policy became even more expansive. In...