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Federal policy responses to the 2007-2009 credit crunch in the US

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  • £ukasz Goczek

    (University of Warsaw, Poland)

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    Abstract

    This paper discusses the key characteristics of the U.S. financial crisis 2007-2009 and focuses on the Federal Policy Response to the lack of liquidity in the financial sector known as the “Credit Crunch”. The surprising depth of the crisis required unprecedented policy measures to be used in order to tackle the mounting liquidity problems in banks and prevent the subsequent credit crunch from taking its toll in the real economy. This required extension of monetary powers of the Federal Reserve and Treasury, which was unmatched in history. The policy response to credit crunch and house price bust was especially important given the fact that recessions following such events tend to be much deeper and longer than any other types of recessions. More importantly, however, the analyses of the current policy responses will determine which form financial markets will take in the next few decades, thus how vulnerable the world economy will be to next disruptions and liquidity problems.

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    File URL: http://www.equilibrium.umk.pl/plikidopobrania/2011_3_goczek.pdf
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    Bibliographic Info

    Article provided by Uniwersytet Mikolaja Kopernika in its journal Equilibrium. Quarterly Journal of Economics and Economic Policy.

    Volume (Year): 6, Issue 3 (2011)
    Issue (Month): ()
    Pages: 27-42

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    Handle: RePEc:cpn:umkequ:2011:v3:2

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    Web page: http://www.wydawnictwoumk.pl

    Related research

    Keywords: credit crunch; liquidity; finance; United States; monetary Policy;

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    1. Linda S. Goldberg & Craig Kennedy & Jason Miu, 2010. "Central bank dollar swap lines and overseas dollar funding costs," Staff Reports 429, Federal Reserve Bank of New York.
    2. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
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    11. Buiter, Willem H., 2009. "Negative nominal interest rates: Three ways to overcome the zero lower bound," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 213-238, December.
    12. Josh Lerner & Peter Tufano, 2011. "The Consequences of Financial Innovation: A Counterfactual Research Agenda," NBER Working Papers 16780, National Bureau of Economic Research, Inc.
    13. John B. Taylor & John C. Williams, 2008. "A black swan in the money market," Working Paper Series 2008-04, Federal Reserve Bank of San Francisco.
    14. Naohiko Baba & Frank Packer, 2009. "From turmoil to crisis: dislocations in the FX swap market before and after the failure of Lehman Brothers," BIS Working Papers 285, Bank for International Settlements.
    15. Carmen M. Reinhart & Vincent Reinhart, 2011. "Pride Goes Before a Fall: Federal Reserve Policy and Asset Markets," NBER Working Papers 16815, National Bureau of Economic Research, Inc.
    16. Asani Sarkar & Jeffrey Shrader, 2010. "Financial amplification mechanisms and the Federal Reserve’s supply of liquidity during the crisis," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 55-74.
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