The Federal Reserve’s response to the financial crisis: what it did and what it should have done
AbstractThis paper analyzes the Federal Reserve’s major policy actions in response to the financial crisis. The analysis is divided into the pre-Lehman and post-Lehman monetary policies. Specifically, I describe the pre- and post-Lehman monetary policy actions that I believe were appropriate and those that were not. I then describe the monetary policy actions the Fed should have taken and why those actions would have fostered better financial market and economic outcomes. Had these actions been taken, the Fed’s balance sheet would have returned to normal and the FOMC’s target for the federal funds rate would be a level consistent with a positive real rate and an inflation target of 2 percent.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-050.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-17 (All new papers)
- NEP-CBA-2012-11-17 (Central Banking)
- NEP-HPE-2012-11-17 (History & Philosophy of Economics)
- NEP-MAC-2012-11-17 (Macroeconomics)
- NEP-MON-2012-11-17 (Monetary Economics)
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