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Monetary policy in the 2008-2009 recession

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  • Robert L. Hetzel
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    Abstract

    The recession that began with a cyclical peak in December 2007 originated in a combination of real shocks because of a fall in housing wealth and a fall in real income from an increase in energy prices. The most common explanation for the intensification of the recession that began in the late summer of 2008 is the propagation of these shocks through dysfunction in credit markets. The alternative explanation offered in this article emphasizes propagation through contractionary monetary policy. The first explanation stresses the importance of credit-market interventions (credit policy). The second emphasizes the importance of money creation (money-creation policy). According to Federal Open Market Committee (FOMC) Chairman William McChesney Martin, "The System should always be engaged in a ruthless examination of its past record" (FOMC Minutes, 11/26/68, 1,456).

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    File URL: http://richmondfed.org/publications/research/economic_quarterly/2009/spring/pdf/hetzel2.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

    Volume (Year): (2009)
    Issue (Month): Spr ()
    Pages: 201-233

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    Handle: RePEc:fip:fedreq:y:2009:i:spr:p:201-233:n:v.95no.2

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    Keywords: Monetary policy ; Credit;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Michael D. Bordo, 2008. "An Historical Perspective on the Crisis of 2007-2008," NBER Working Papers 14569, National Bureau of Economic Research, Inc.
    2. Robert E. Lucas, Jr., 1980. "Rules, Discretion, and the Role of the Economic Advisor," NBER Chapters, in: Rational Expectations and Economic Policy, pages 199-210 National Bureau of Economic Research, Inc.
    3. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    4. Robert L. Hetzel, 2009. "World Recession: What Went Wrong?," Economic Affairs, Wiley Blackwell, vol. 29(3), pages 17-21, 09.
    5. Hetzel,Robert L., 2008. "The Monetary Policy of the Federal Reserve," Cambridge Books, Cambridge University Press, number 9780521881326, October.
    6. Robert L. Hetzel, 2006. "Making the systematic part of monetary policy transparent," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 255-290.
    7. John R. Walter, 2005. "Depression era bank failures : the great contagion of the great shakedown?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 39-54.
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    Cited by:
    1. Tatom, John A., 2014. "U.S. monetary policy in disarray," Journal of Financial Stability, Elsevier, vol. 12(C), pages 47-58.
    2. WARBURTON, Christopher E.S., 2013. "When Markets Fail: Asset Prices, Government Expenditures, and the Velocity of Money," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 73-92.
    3. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.

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