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Facts and myths about the financial crisis of 2008

Author

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  • V. V. Chari
  • Lawrence J. Christiano
  • Patrick J. Kehoe

Abstract

The United States is indisputably undergoing a financial crisis. Here we examine four claims about the way the financial crisis is affecting the economy as a whole and argue that all four claims are myths. Conventional analyses of the financial crisis focus on interest rate spreads. We argue that such analyses may lead to mistaken inferences about the real costs of borrowing and argue that, during financial crises, variations in the levels of nominal interest rates might lead to better inferences about variations in the real costs of borrowing.

Suggested Citation

  • V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 2008. "Facts and myths about the financial crisis of 2008," Working Papers 666, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:666
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    Keywords

    Financial crises;

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