scholarly journals To What Extent did Monetary Policy Contribute Towards the Recent Financial Crisis and Subsequent Recession in the US and UK?

2019 ◽  
Vol 3 (2) ◽  
pp. 9
Author(s):  
Tao Hu ◽  
Ceri Davies
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Taylor Rule ◽  
Economic Fundamentals ◽  
Nominal Interest Rates ◽  
The Us ◽  
Recent Financial Crisis ◽  
The Uk ◽  
The Relationship

This essay researches the question, “To what extent did monetary policy contribute towards the recent financial crisis and subsequent recession in the US and UK?” This article begins by demonstrating monetary policy’s role in guiding the economy’s development under different economic fundamentals. Then the essay puts forward the existence of possibility that monetary policy may cause potential dangers for the economy. In the next chapter, the essay illustrates the guideline for monetary policy namely Taylor rule and economists’ arguments and explanations for the US monetary policy in the past decade. In chapter 3, this article estimates the nominal interest rates for both the US and the UK based on Taylor rule for different periods and illustrates influences of monetary policy actually taken for each country in different periods. In chapter 4, the article tests the relationship between monetary policy’s deviations from Taylor rule and financial imbalances by using the OLS method and explains results. Finally, in chapter 5, the article concludes that in some degree monetary policy’s deviations from Taylor rule prescriptions contribute to a build-up of financial imbalances.

scholarly journals CONVENTIONAL AND UNCONVENTIONAL MONETARY POLICY. THE CASE OF ROMANIA

2016 ◽  
Author(s):  
Ioana Plescau
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Credit Risk ◽  
Interest Rates ◽  
Banking System ◽  
Central Banks ◽  
Unconventional Monetary Policy ◽  
National Bank ◽  
Recent Financial Crisis ◽  
The Relationship

The aim of our paper is to analyze the conventional and unconventional monetary policy in Romania, in the context of the recent financial crisis. We study the relationship between interest rates and credit risk, but also the non-standard monetary measures that were adopted by the National Bank of Romania and their impact on the banking system. Our results point to a decrease of interest rates in the years after the crisis, which is in line with the majority of central banks that have reduced monetary rates in order to sustain the economy and the credit activity.

Lässt sich die Geldschöpfung der Geschäftsbanken noch kontrollieren? – Geldpolitik seit der jüngsten Finanzkrise 2007/2008

2018 ◽  
Vol 87 (3) ◽  
pp. 47-63
Author(s):  
Mathias Binswanger
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Financial Crises ◽  
Commercial Banks ◽  
Central Banks ◽  
The Past ◽  
Monetary Authorities ◽  
Money Creation ◽  
Recent Financial Crisis

Zusammenfassung: Als Folge der jüngsten Finanzkrise ist der Einfluss der Zentralbanken auf die Geldschöpfung weitgehend verloren gegangen. Denn die Kontrolle über Reserven funktioniert nur solange, wie diese knapp sind und deren Bezug an bestimmte Bedingungen geknüpft werden kann. Seither halten die Geschäftsbanken in den ökonomisch wichtigsten Ländern de facto dermaßen viele Reserven, dass sie nicht mehr auf die jeweilige Zentralbank angewiesen sind. Diese Entwicklung lässt sich sowohl für die FED als auch für die EZB aufzeigen. Dies führt zu geldpolitisch neuen Herausforderungen, die bisher kaum beachtet wurden. Die Einflussmöglichkeit der Zentralbanken auf den Geldschöpfungsprozess der Geschäftsbanken wurde noch nie in so großem Stil ausgehebelt. Deshalb müssen Zentralbanken in Zukunft ihr Repertoire an geldpolitischen Massnahmen erweitern. Nur mit dem Drehen an der Zinsschraube wird man den Geldschöpfungsprozess in Zukunft kaum mehr in gewünschter Weise beeinflussen können. Summary: As a result of the recent financial crisis, the influence of central banks on money creation has largely disappeared. Controlling this process only works as long as money creation of commercial banks also leads to a need for additional reserves from the central bank. However, the large asset purchase programs of monetary authorities after the financial crises resulted in an enormous increase in reserves at commercial banks. Therefore, commercial banks have enough reserves to create additional money at large amounts and do not depend on central banks any more. This development is indicative for both the FED and the ECB. Therefore central banks face the challenge how they can restore their influence on the process of money creation. Just lowering or increasing interest rates, which was the major way of conducting monetary policy in the past, will not work anymore in the future.

scholarly journals THE IMPACT OF THE MONETARY - FISCAL POLICY MIX ON INVESTMENTS OF EURO AREA COUNTRIES IN THE CONTEXT OF THE FINANCIAL CRISIS

2012 ◽  
Vol 8 (1) ◽  
pp. 228-236
Author(s):  
Joanna Stawska
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Euro Area ◽  
Debt Crisis ◽  
Policy Mix ◽  
Monetary Authorities ◽  
Recent Financial Crisis ◽  
The Impact

The study presents the impact of monetary-fiscal policy mix on economic growth, mainly for the investments of euro area in financial crisis. Fiscal policy and monetary policy play an important role in the economy, influencing each other and on a number of economic variables as well. In the face of the recent financial crisis, which turned into a debt crisis, fiscal and monetary authorities have been working together to revive economic activity. There was a significant economic impact on the level of government investments. The central bank kept interest rates at very low levels and used nonstandard instruments of monetary policy. Fiscal authorities have increased government spending to stimulate investment and economic recovery. The paper concludes that the management of the fiscal and monetary authorities in a crisis situation has been modified compared to the period before the crisis, when the coordination of these policies was clearly weaker.

Policy Responses to the Collapse of the Financial Sector: Introduction

2010 ◽  
Vol 211 ◽  
pp. R1-R2 ◽  
Author(s):  
Ray Barrell
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Euro Area ◽  
Trade Credit ◽  
Investment Decision ◽  
Credit Rationing ◽  
Policy Responses ◽  
Investment Decision Making ◽  
The Us ◽  
The Uk

The downturn in global economic activity that started in 2008 was turned into a major recession after the failure of Lehman Brothers in September 2008. It appears that world output fell by more than 1 per cent in 2009, and OECD output probably fell by around 3½ per cent. The effects on output were more marked in the Euro Area and the UK than they were in the US or Canada, which partly reflects the policy responses chosen by Treasuries and Central Banks. The financial crisis that drove the recession affected banks in the US, the UK, the Euro Area and the rest of Europe rather more than it did those in Canada, Australia and Japan. However, recessions have been common, with only Australia and Poland appearing to avoid them. The financial crisis led rapidly to a freezing of trade credit, which caused world trade to decline very sharply at the beginning of 2009. The financial crisis also led to an increase in risk premia in investment decision-making and hence to a decline in the equilibrium capital output ratio, which caused a sharp reduction in the demand for capital goods. Combined with credit rationing effects for firms needing access to borrowing, this induced a collapse in investment. Trade channels made the crisis global, as did movements in exchange rates. Interest rates were cut sharply in the US, Europe and Japan, and approached levels seen in Japan for the previous decade. As a result the yen appreciated strongly, and the combination of the effects of this appreciation on competitiveness and the decline in investment goods trade meant that Japan suffered worse than most other countries, at least in the short term.

scholarly journals A comparative study between the UK and the USA house price indicators before and during the financial crisis of 2007-2009

2018 ◽  
Vol 10 (4) ◽  
pp. 456-472
Author(s):  
Abdelhafid Benamraoui
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
House Price ◽  
Content Type ◽  
Economic Fundamentals ◽  
Study Results ◽  
Wide Range ◽  
The Us ◽  
The Usa ◽  
The Uk

Purpose This paper aims to examine the relationship between key economic fundamentals and average house price (AHP) movements before and during the financial crisis of 2007 to 2009 in the UK and the USA. Design/methodology/approach Multiple regression analysis is applied in assessing the correlation between AHPs and a set of selected economic fundamentals. Findings The study results show that earnings and to less extent interest rate have the highest correlation with the AHP and among the different types of interest rate used variable interest rate has the strongest correlation with AHP. The results also reveal that most indicators behave in the same way both before and during the financial crisis, but with better explanatory power for the pre-crisis period. Another key finding is that the directions of relationship for some of the parameters have changed when the market is in crisis, especially in the case of loans extended to house purchase for the UK market and number of households for the US market. Originality/value The originality of the paper stems in using a wide range and thoroughly selected economic fundamentals to explain the movement in house prices and to observe the effect of financial crisis on the correlation between each economic factor and house price movements. The study is also unique in comparing the UK and the US housing markets for the time frame under consideration and for the economic parameters used.

THE CONVENTIONAL MONETARY POLICY AND TERM STRUCTURE OF INTEREST RATES DURING THE FINANCIAL CRISIS

2018 ◽  
Vol 22 (8) ◽  
pp. 2032-2069 ◽  
Author(s):  
Tolga Cenesizoglu ◽  
Denis Larocque ◽  
Michel Normandin
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Term Structure ◽  
Empirical Literature ◽  
Monetary Policies ◽  
Financial Variables ◽  
Auto Regressive ◽  
Recent Financial Crisis ◽  
Identification Strategy

This paper analyzes whether the Fed had the ability through its conventional monetary policy to affect key economic and financial variables, and, in particular, the term structure of interest rates, during the recent financial crisis. This departs from the empirical literature that focuses mainly on the effectiveness of unconventional monetary policies during this episode, although these policies are appropriate only to the extent that the conventional policy was ineffective in the first place. Our identification strategy based on the conditional heteroskedasticity of the structural innovations allows us to specify a flexible structural vector auto-regressive process that relaxes the identifying assumptions commonly used in earlier studies. Comparing our results obtained from samples excluding and including the financial crisis, we find that the conventional monetary policy has lost its effectiveness shortly after the beginning of the financial turmoil. This result suggests that the Fed's use of unconventional policies was appropriate, at least, with the objective of changing the term structure of interest rates.

scholarly journals An Investigation on the Monetary Policy and Short-term Interest Rates in Japan

2011 ◽  
Vol 1 (1) ◽  
pp. 64 ◽  
Author(s):  
Chikashi TSUJI
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Taylor Rule ◽  
Consumer Price Index ◽  
Call Rate ◽  
Interest Rate Policy ◽  
Zero Interest Rate Policy ◽  
The Us ◽  
Rate Policy

We explore the intertemporal linkage between call rate changes, consumer price index (CPI) changes, and real gross domestic product (GDP) changes in Japan based on the Taylor rule of monetary policy. In our analysis, we consider two sample periods, namely, the former is before zero-interest rate policy and the latter is after it. According to our empirical results, first, we find that the relations between call rate changes and GDP changes and those between call rate changes and CPI changes are weak before zero-interest rate policy. Second, we also find that after zero-interest rate policy, mutual intertemporal relations between call rate changes and GDP changes are seen as the US Taylor rule suggests, although the linkage between call rate changes and CPI changes is not seen. Hence after zero-interest rate policy, regarding call rates and GDP, the relations suggested by US Taylor rule are found in Japan.

scholarly journals THE VILIBOR–EURIBOR SPREAD DYNAMICS DURING THE RECENT FINANCIAL CRISIS

Ekonomika ◽  
2011 ◽  
Vol 90 (4) ◽  
pp. 100-115 ◽  
Author(s):  
Vytenis Lapinskas
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Data Series ◽  
Factors Affecting ◽  
Systemic Analysis ◽  
International Financial Crisis ◽  
Spread Dynamics ◽  
Historical Data Analysis ◽  
Recent Financial Crisis ◽  
The Relationship

This article deals with the influence of the international financial crisis on the Lithuanian interbank market interest rates. Specifically, VILIBOR–EURIBOR spread dynamics over the period from the beginning of 2005 until the end of 2010 is analysed. The objective of the study was to estimate and describe the main factors affecting the VILIBOR spread. Methods used in the study include a systemic analysis of related studies, historical data analysis and statistical testing.Several episodes of increased market volatility could be clearly identified during the period, under study and the volatility of the data series as well as changes in their statistical properties and interdependence make the statistical analysis of the relationship very complicated. Statistically robust results could be achieved only after introducing several restrictions. The EURIBOR, RIGIBOR and Lithuanian CDS indexes have been found to explain more than 40 percent of the largest VILIBOR spread changes.

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