Would a Bagehot style corporate bond backstop have helped counter the Great Recession?

Abstract

In 2008, US corporate bond spreads almost reached Great Depression levels. The Fed was a lender of last resort in commercial paper, but not corporate bonds. The Fed’s FRB/US macroeconomic model is used to simulate the effects of the Fed successfully capping the BBB-10 year Treasury spread at 100 basis points above the 1970–2006 average spread. The simulations suggest that real GDP might have been one percentage point higher and the unemployment rate one-half percentage point lower.