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Monetary Policy, Financial Regulation and Financial Stability: A Comparison between the Fed and the ECB in the Wake of the Global Financial Crisis

Author

Listed:
  • Schnabl Gunther

    (Institut für Wirtschaftspolitik, Universität LeipzigLeipzigGermany)

  • Sonnenberg Nils

    (Institut für Wirtschaftspolitik, Universität LeipzigLeipzigGermany)

Abstract

The paper discusses in light of Austrian and Keynesian economic theory the impact of conventional and unconventional monetary policies as therapies for financial crises. It reviews the financial market stabilization measures of the Federal Reserve System and the Eurosystem in response to the US subprime crisis and the European financial and debt crisis. It shows that stabilization measures both in the US and the euro area are based on Keynesian thinking, whereas longer-term consequences of financial stabilization measures tend to be neglected. It is argued that the Federal Reserve System’s crisis measures were more directed towards stabilizing the banking system, whereas the European Central Bank first and foremost focused on debt sustainability of euro area crisis countries. In both cases, household credit growth remained under control despite renewed monetary expansion, while new imbalances emerged in the banking and corporate sector as suggested by Austrian economic theory.

Suggested Citation

  • Schnabl Gunther & Sonnenberg Nils, 2020. "Monetary Policy, Financial Regulation and Financial Stability: A Comparison between the Fed and the ECB in the Wake of the Global Financial Crisis," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 71(1), pages 180-210, April.
    • Handle: RePEc:bpj:ordojb:v:71:y:2020:i:1:p:180-210:n:19
    DOI: 10.1515/ordo-2021-0002
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    Citations

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    Cited by:

    1. Thomas Mayer & Gunther Schnabl, 2023. "How to escape from the debt trap: Lessons from the past," The World Economy, Wiley Blackwell, vol. 46(4), pages 991-1016, April.

    More about this item

    Keywords

    Financial Cycles; Financial Crisis; Financial Stability; Hayek; Keynes; Monetary Policy; Finanzzyklen; Finanzkrise; Finanzstabilität; Hayek; Keynes; Geldpolitik; B53; E12; E14; E30; E44; E58; G10; G20; H30; H50;
    All these keywords.

    JEL classification:

    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E14 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Austrian; Evolutionary; Institutional
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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