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Monetary policy and the twin crises

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  • Lothian, James R.

Abstract

After presenting a brief overview of the recent financial crisis and the European debt crisis that followed in its wake, this paper goes on discuss monetary policy in the United States, the United Kingdom and the Euro bloc prior to and during the course of the two crises. The paper presents historical evidence for the three areas on the relationships linking the volatilities of output, inflation and monetary growth. In all three these relations are strongly positive. There is, therefore, no tradeoff between inflation and output volatility; the two move up and down together. Both, moreover, move up and down with the volatility of monetary growth. Viewed from this perspective, the increased volatilities of money supplies and the monetary base in the United States, the United Kingdom and the Euro bloc over the last half decade pose problems.

Suggested Citation

  • Lothian, James R., 2014. "Monetary policy and the twin crises," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 197-210.
  • Handle: RePEc:eee:jimfin:v:49:y:2014:i:pb:p:197-210
    DOI: 10.1016/j.jimonfin.2014.04.004
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    Cited by:

    1. Mirdala, Rajmund & Ruščáková, Anna, 2015. "On Origins and Implications of the Sovereign Debt Crisis in the Euro Area," MPRA Paper 68859, University Library of Munich, Germany.
    2. Lothian, James R., 2016. "Comment on Rudebusch and Williams, “A wedge in the dual mandate: Monetary policy and long-term unemployment”," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 19-25.
    3. Jean-Pierre Allegret & Audrey Sallenave, 2016. "Intra-European Union Imbalances and Cyclical Position: Does Monetary Policy Matter?," Post-Print hal-01410832, HAL.
    4. repec:eee:asieco:v:53:y:2017:i:c:p:37-55 is not listed on IDEAS

    More about this item

    Keywords

    Monetary policy; Money multiplier; Financial crisis; European debt crisis;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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