In response to the financial crisis of 2008, the Federal Reserve radically increased the monetary base. Banks responded by increasing excess reserves rather than increasing bank loans, and the public responded with a substantial flight to liquidity in the form of currency and demand deposits. As...

This paper gives money a role in providing cheap collateral in a model of banking; besides the Taylor Rule, monetary policy can affect the risk-premium on bank lending to firms by varying the supply of M0, so at the zero bound monetary policy is effective; fiscal policy crowds out investment via...

This paper views the policy response to the recent financial crisis from the perspective of Milton Friedman's monetary economics. Five major aspects of the policy response are: 1) discount window lending has been provided broadly to the financial system, at rates low relative to the market rates...

Credit booms sometimes lead to financial crises which are accompanied with severe and persistent economic slumps. Does this imply that monetary policy should "lean against the wind" and counteract excess credit growth, even at the cost of higher output and inflation volatility? We study this...

This paper makes an empirical comparison of two simple monetary policy rules, the McCallum rule and the Taylor rule and uses them to assess the monetary policy stance of the ECB during the financial crisis. After the Taylor rule, the McCallum rule ranks among the most widely analysed nominal...

Credit booms sometimes lead to financial crises which are accompanied with severe and persistent economic slumps. Does this imply that monetary policy should “lean against the wind” and counteract excess credit growth, even at the cost of higher output and inflation volatility? We study this...

One of the focuses of recent literature has been the macroeconomic effects of macroprudential policy instruments. The innovation of this paper is that it studies the effects of transparent macro-prudential policies on price stability. The results presented herein provide the first empirical...

On 16th November 2009, SUERF, CEPS and the Belgian Financial Forum coorganized a conference "Crisis management at cross-roads" in Brussels. All papers in the present volume are based on contributions at the conference and the SUERF Annual Lecture which followed the event.

This study assesses the European Central Bank’s (ECB) crisis management performance and potential for crisis resolution. The study investigates the institutional and functional constraints that delineate the ECB’s scope for policy action under crisis conditions, and how the bank has actually...

We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally...