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Causes of the Financial Crisis and Great Recession: The Role of U.S. Monetary Policy

Author

Listed:
  • Hayford, Marc D.
  • Malliaris, A.G.

Abstract

This paper focuses on the role U.S. monetary policy may have played in creating the U.S. housing boom/bust cycle that caused the financial crisis of 2007–2008 and consequently the “Great Recession”. Both capital inflows and looser U.S. mortgage lending terms and standards (to the extent that these are independent of monetary policy) suggest an alternative source of funds to fuel the initial increase in housing demand and also to sustain the boom. We find the argument that U.S. monetary policy solely caused the housing price boom/bust cycle less than completely convincing.

Suggested Citation

  • Hayford, Marc D. & Malliaris, A.G., 2011. "Causes of the Financial Crisis and Great Recession: The Role of U.S. Monetary Policy," The Journal of Economic Asymmetries, Elsevier, vol. 8(2), pages 73-90.
    • Handle: RePEc:eee:joecas:v:8:y:2011:i:2:p:73-90
    DOI: 10.1016/j.jeca.2011.02.007
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    References listed on IDEAS

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    1. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
    2. Del Negro, Marco & Otrok, Christopher, 2007. "99 Luftballons: Monetary policy and the house price boom across U.S. states," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1962-1985, October.
    3. Glenn D. Rudebusch, 2009. "The Fed's monetary policy response to the current crisis," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may22.
    4. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2012. "Can Cheap Credit Explain the Housing Boom?," NBER Chapters, in: Housing and the Financial Crisis, pages 301-359, National Bureau of Economic Research, Inc.
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    Cited by:

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    2. Qin, Meng & Su, Chi-Wei & Hao, Lin-Na & Tao, Ran, 2020. "The stability of U.S. economic policy: Does it really matter for oil price?," Energy, Elsevier, vol. 198(C).
    3. Li, Rongrong & Li, Shuyu, 2021. "Carbon emission post-coronavirus: Continual decline or rebound?," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 57-67.
    4. Anastasios G. Malliaris, 2018. "The Evolving Nature of Asset Price Bubbles, Financial Instability and Monetary Policy," Multinational Finance Journal, Multinational Finance Journal, vol. 22(1-2), pages 35-62, March - J.
    5. Lupu, Radu & Călin, Adrian Cantemir & Dumitrescu, Dan Gabriel & Lupu, Iulia, 2025. "Introducing a novel fragility index for assessing financial stability amid asset bubble episodes," The North American Journal of Economics and Finance, Elsevier, vol. 75(PA).

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    Keywords

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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