This paper extends the model in Kiyotaki and Moore (2008) to include nominal wage and price frictions and explicitly incorporates the zero bound on the short-term nominal interest rate. We subject this model to a shock which arguably captures the 2008 US financial crisis. Within this framework we ask: Once interest rate cuts are no longer feasible due to the zero bound, what are the effects of non-standard open market operations in which the government exchanges liquid government liabilities for illiquid private assets? We find that the effect of this non-standard monetary policy can be large at zero nominal interest rates. We show model simulations in which these policy interventions prevented a repeat of the Great Depression in 2008-2009. The views expressed herein are solely those of the authors and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. We thank Sonia Gilbukh for outstanding research assistance. We also thank John Moore as well as seminar participants at the N
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