Abstract
The financial crisis of 2007–8 has caused the melting down of the financial markets over the world. Globalization, jointly with increased interconnectedness among financial institutions in different countries, has caused a real freezing of many transactions on financial markets. The global aspect of the last crisis is what distinguishes it from previous episodes of financial crises and also from other recent world financial crises such as the Asian crisis. The policy response to the crisis has also been quite similar in the euro area and in the United States, with differences arising from the respective legislative backgrounds. The striking point is that all the most important central banks seemed to be unaware of the dangers of the increasing volume of transactions in financial markets and of the complicated web of mutual relations among financial institutions all over the world for a long time after the crisis started in the United States in August 2007. The Federal Reserve started with a modest lowering of the interest rate, which was followed by many rounds of further falls, but it did not realize the gravity of the problem until halfway through 2008, when it started using less conventional tools and acting, rather than as a lender of last resort, as a market-maker of last resort. The ECB exhibited even less awareness of the global dimensions and gravity of the crisis; in the middle of the financial turmoil, it decided to raise the interest rate, which was already higher than the Federal Reserve’s rate, by 0.25 base points.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Bernanke B. (2010) ‘Semiannual Monetary Policy Report to the Congress Before the Committee on Banking, Housing, and Urban Affairs’, US Senate, Washington, DC, 21 July 2010, http://www.federalreserve.gov/newsevents/testimony/bernanke20100721a.htm. For the complete video of the testimony, see http://banking.senate.gov/.
Dodd R. (2007) ‘Subprime: Tentacles of a Crisis’, Finance and Development (December): 15–19.
European Central Bank (2007) The Euro Bond and Derivatives Markets, June 2007.
European Central Bank (2010) ‘Extraordinary Measures in Extraordinary Times’, Occasional Paper n.117 by S. M. Stolz and M. Wedow.
Federal Reserve (2010) ‘Profits and Balance Sheet Developments at US Commercial Banks in 2009’, Federal Reserve Bulletin, May 2010.
Ferguson, T. and Johnson, R. (2009) ‘Too Big to Bail: The “Paulson Put,” Presidential Politics, and the Global Financial Meltdown’, International Journal of Political Economy, vol. 38, no. 2, pp. 5–45.
Gorton, G. B. (2008) ‘The Subprime Panic’, Yale ICF Working Paper No. 08-25. Available at SSRN: http://ssrn.com/abstract=1276047.
Gorton, G. B. and Metrick, A. (2010) ‘Securitized Banking and the Run on Repo (July 14, 2010)’, Yale ICF Working Paper No. 09-14. Available at SSRN: http://ssrn.com/abstract=1440752.
Hart, O. and Zingales, L. (2010) ‘Curbing Risk on Wall Street’, National Affairs, no. 3, pp. 20–34, www.nationalaffairs.com.
International Monetary Fund (2010) ‘United States: Publication of Financial Sector Assessment Program Documentation — Financial System Stability Assessment’, IMF Country Report No. 10/247 Washington, DC.
Kacperczyk, M. and Schnabl P. (2010) ‘When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007–2009’, Journal of Economic Perspectives, vol. 24, no. 1, pp. 29–50.
Keen S. (2009) ‘Bailing Out the Titanic with a Thimble’, Economic Analysis and Policy, vol. 39, no. 1, pp. 1–24.
Levy Economics Institute of Bard College (2010) ‘Proceedings Annual Hyman Minsky Conference 2010’, Paul Volcker Q&A, http://www.levyinstitute.org/conferences/minsky2010/.
Minsky, H. (1982) Can ‘It’ Happen Again? Essays on Instability and Finance, New York: M. E. Sharpe.
Minsky, H. (2008) ‘Securitization’, Jerome Levy Economics Institute Policy Note No. 2.
Pozsar, Z., Adrian, T., Ashcraft, A. and Boesky, H. (2010) ‘Shadow Banking’, Staff Report no. 458, Federal Reserve Bank of New York.
Tropeano D. (2010) ‘The Current Financial Crisis, Monetary Policy and Minsky’s Structural Instability Hypothesis’, International Journal of Political Economy, vol. 39, no. 2 (Summer 2010), pp. 41–57.
Tropeano, D. (forthcoming) ‘Quantitative Easing in the United States after the Crisis: Conflicting Views’, in Rochon L.-P. (ed.), Central Bank Policies and Financial Crises, Cheltenham: Edward Elgar.
Editor information
Editors and Affiliations
Copyright information
© 2011 Domenica Tropeano
About this chapter
Cite this chapter
Tropeano, D. (2011). The Monetary Policy Response to the Financial Crisis in the Euro Area and in the United States: A Comparison. In: Della Posta, P., Talani, L.S. (eds) Europe and the Financial Crisis. Palgrave Macmillan, London. https://doi.org/10.1057/9780230305007_3
Download citation
DOI: https://doi.org/10.1057/9780230305007_3
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-33070-6
Online ISBN: 978-0-230-30500-7
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)