Central Banking in a Systemic Crisis: The Federal Reserve's 'Credit Easing.'

In response to the worst crisis since the Great Depression the Federal Reserve undertook a series of different policy measures. These could be divided into two response categories. The first consisted of extensions of traditional monetary-policy tools, which have had to be adjusted and/or ramped up to scale in the face of an unprecedented financial crisis. The second involved entirely new channels of liquidity provision designed to revive or replace financial markets that no longer work properly following their breakdown in the crisis. It is only by looking at those different response strategies that we can full appreciate how the US central bank managed to prevent the world economy from sliding into a dangerous debt-deflation spiral. At the same time monetary policy alone is insufficient to assure an adequate recovery.