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Monetary policy, financial regulation and financial stability: A comparison between the Fed and the ECB

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  • Schnabl, Gunther
  • Sonnenberg, Nils

Abstract

The paper analyses in light of Austrian and Keynesian economic theory the impact of conventional and unconventional monetary policies as therapies for financial crises. It compares the financial market stabilization measures of the Federal Reserve System and the European System of Central Banks in response to the US subprime crisis and the European financial and debt crisis. It is shown that the Federal Reserve System's crisis measures were more directed towards stabilizing the banking system, whereas the European Central Bank had a stronger focus on the stabilization of the debt affordability of euro area crisis countries. In both cases, household credit growth remained under control despite renewed monetary expansion, while new imbalances emerged in the corporate sector. In the euro area, loose monetary policy had a destabilizing impact on the financial sector.

Suggested Citation

  • Schnabl, Gunther & Sonnenberg, Nils, 2020. "Monetary policy, financial regulation and financial stability: A comparison between the Fed and the ECB," Working Papers 166, University of Leipzig, Faculty of Economics and Management Science.
    • Handle: RePEc:zbw:leiwps:166
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    References listed on IDEAS

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    Cited by:

    1. Thomas Mayer & Gunther Schnabl, 2020. "Post-COVID-19 EMU: Economic Distancing by Parallel Currencies," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(6), pages 387-391, November.
    2. 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.

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    More about this item

    Keywords

    Financial cycles; financial crisis; financial stability; Hayek; Keynes; monetarypolicy;
    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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