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Why Monetary Policy has Been Comparatively Ineffective?

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  • Charles Goodhart

Abstract

type="main"> Never before in any previous crisis has monetary policy responded with such aggressive expansion. Not only have short-term policy rates been cut to zero, but the monetary base, and even more so commercial bank reserves, have been increased hugely. Yet bank lending to the private sector and the broad money supply have stagnated, and the recovery has been weak. While the prior level of bank equity was patently too low, the way in which the regulatory requirements for higher equity ratios have been introduced encouraged deleveraging, especially via reductions in cross-border lending. Much more thought should have been given both to the incentives that bank CEOs faced and to the appropriate mechanisms for raising additional bank equity.

Suggested Citation

  • Charles Goodhart, 2015. "Why Monetary Policy has Been Comparatively Ineffective?," Manchester School, University of Manchester, vol. 83, pages 20-29, September.
  • Handle: RePEc:bla:manchs:v:83:y:2015:i::p:20-29
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    File URL: http://hdl.handle.net/10.1111/manc.12094
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    References listed on IDEAS

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    1. David Miles & Jing Yang & Gilberto Marcheggiano, 2013. "Optimal Bank Capital," Economic Journal, Royal Economic Society, vol. 123(567), pages 1-37, March.
    2. Anat Admati & Martin Hellwig, 2013. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It," Economics Books, Princeton University Press, edition 1, number 9929.
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    Cited by:

    1. Wix, Carlo & Schüwer, Ulrich, 2016. "Monetary Policy and Bank Lending: A Natural Experiment from the US Mortgage Market," Annual Conference 2016 (Augsburg): Demographic Change 145943, Verein für Socialpolitik / German Economic Association.
    2. repec:zbw:ifweej:201841 is not listed on IDEAS
    3. Xiong, Wanting & Wang, Yougui, 2017. "The impact of Basel III on money creation: A synthetic analysis," Economics Discussion Papers 2017-53, Kiel Institute for the World Economy (IfW).

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