IDEAS home Printed from https://ideas.repec.org/a/fip/fedreq/y2009isprp201-233nv.95no.2.html
   My bibliography  Save this article

Monetary policy in the 2008-2009 recession

Author

Listed:
  • Robert L. Hetzel

Abstract

The recession that began with a cyclical peak in December 2007 originated in a combination of real shocks because of a fall in housing wealth and a fall in real income from an increase in energy prices. The most common explanation for the intensification of the recession that began in the late summer of 2008 is the propagation of these shocks through dysfunction in credit markets. The alternative explanation offered in this article emphasizes propagation through contractionary monetary policy. The first explanation stresses the importance of credit-market interventions (credit policy). The second emphasizes the importance of money creation (money-creation policy). According to Federal Open Market Committee (FOMC) Chairman William McChesney Martin, \\"The System should always be engaged in a ruthless examination of its past record\\" (FOMC Minutes, 11/26/68, 1,456).

Suggested Citation

  • Robert L. Hetzel, 2009. "Monetary policy in the 2008-2009 recession," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Spr), pages 201-233.
    • Handle: RePEc:fip:fedreq:y:2009:i:spr:p:201-233:n:v.95no.2
    as

    Download full text from publisher

    File URL: https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/economic_quarterly/2009/spring/pdf/hetzel2.pdf
    File Function: Full Text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert E. Lucas, Jr., 1980. "Rules, Discretion, and the Role of the Economic Advisor," NBER Chapters, in: Rational Expectations and Economic Policy, pages 199-210, National Bureau of Economic Research, Inc.
    2. Hetzel, Robert L., 1990. "Central banks' independence in historical perspective : A review essay," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 165-176, January.
    3. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
    4. Robert L. Hetzel, 2009. "World Recession: What Went Wrong?," Economic Affairs, Wiley Blackwell, vol. 29(3), pages 17-21, September.
    5. Nathan Balke & Robert J. Gordon, 1986. "Appendix B: Historical Data," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 781-850, National Bureau of Economic Research, Inc.
    6. Hetzel,Robert L., 2008. "The Monetary Policy of the Federal Reserve," Cambridge Books, Cambridge University Press, number 9780521881326, October.
    7. John R. Walter, 2005. "Depression era bank failures : the great contagion of the great shakedown?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 91(Win), pages 39-54.
    8. Robert L. Hetzel, 2006. "Making the systematic part of monetary policy transparent," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 92(Sum), pages 255-290.
    9. Milton Friedman, 1961. "The Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 69(5), pages 447-447.
    10. Michael D. Bordo, 2008. "An Historical Perspective on the Crisis of 2007-2008," NBER Working Papers 14569, National Bureau of Economic Research, Inc.
    11. Robert L. Hetzel, 2005. "What difference would inflation make?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 91(Spr), pages 45-72.
    12. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tatom, John A., 2014. "U.S. monetary policy in disarray," Journal of Financial Stability, Elsevier, vol. 12(C), pages 47-58.
    2. Roberto Motto & Massimo Rostagno & Lawrence J. Christiano, 2010. "Financial Factors in Economic Fluctuations," 2010 Meeting Papers 141, Society for Economic Dynamics.
    3. WARBURTON, Christopher E.S., 2013. "When Markets Fail: Asset Prices, Government Expenditures, and the Velocity of Money," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 73-92.
    4. Belongia, Michael T. & Ireland, Peter N., 2016. "The evolution of U.S. monetary policy: 2000–2007," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 78-93.
    5. Michael D. Bordo & John S. Landon-Lane, 2012. "The Global Financial Crisis: Is It Unprecedented?," Chapters, in: Maurice Obstfeld & Dongchul Cho & Andrew Mason (ed.), Global Economic Crisis, chapter 2, Edward Elgar Publishing.
    6. Singh, Vikkram & Roca, Eduardo & Li, Bin, 2021. "Effectiveness of policy interventions during financial crises in China and Russia: Lessons for the COVID-19 pandemic," Journal of Policy Modeling, Elsevier, vol. 43(2), pages 253-277.
    7. Bernard LANDAIS, 2010. "The Monetary Origins Of The Economic And Financial Crisis," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(3(13)/Fal), pages 280-291.
    8. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    9. Robert L. Hetzel, 2009. "Should increased regulation of bank risk-taking come from regulators or from the market?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Spr), pages 161-200.
    10. Levrero, Enrico Sergio & Deleidi, Matteo, 2017. "The money creation process: A theoretical and empirical analysis for the US," MPRA Paper 81970, University Library of Munich, Germany.
    11. Michael D Bordo, 2012. "The Great Depression and the Great Recession: What have we Learned?," Working Papers id:4924, eSocialSciences.
    12. Michael D. Bordo & John S. Landon-Lane, 2010. "The Global Financial Crisis of 2007-08: Is it Unprecedented?," NBER Working Papers 16589, National Bureau of Economic Research, Inc.
    13. Sumner, Scott, 2017. "Monetary policy rules in light of the great recession," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 90-99.
    14. Dumitriu, Ramona & Stefanescu, Răzvan, 2020. "Provocări pentru Finanţele Comportamentale în contextul COVID-19 [Some challenges for the Behavioral Finance in the Context of COVID-19]," MPRA Paper 99675, University Library of Munich, Germany, revised 16 Apr 2020.
    15. Cameron Harwick, 2019. "Bubbles and Broad Monetary Aggregates: Toward a Consensus Approach to Business Cycles," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(2), pages 250-268, April.
    16. Corina SERBAN, 2011. "The Impact Of Recession On Social Marketing Activities : An Analysis Of Non-Profit Organizations Performance In The Context Of A Fluctuating European Economy," Journal of Doctoral Research in Economics, The Bucharest University of Economic Studies, vol. 3(3), pages 38-47, September.
    17. Domenico Lombardi & Pierre Siklos & Samantha St. Amand, 2018. "A Survey Of The International Evidence And Lessons Learned About Unconventional Monetary Policies: Is A ‘New Normal’ In Our Future?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1229-1256, December.
    18. Michael D. Bordo & Harold James, 2009. "The Great Depression Analogy," NBER Working Papers 15584, National Bureau of Economic Research, Inc.
    19. Levrero, Enrico Sergio & Deleidi, Matteo, 2019. "The causal relationship between short- and long-term interest rates: an empirical assessment of the United States," MPRA Paper 93608, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert L. Hetzel, 2008. "What is the monetary standard, or, how did the Volcker-Greenspan FOMCs tame inflation?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 94(Spr), pages 147-171.
    2. Benati, Luca, 2009. "Long run evidence on money growth and inflation," Working Paper Series 1027, European Central Bank.
    3. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    4. Michael D. Bordo & Joseph G. Haubrich, 2017. "Deep Recessions, Fast Recoveries, And Financial Crises: Evidence From The American Record," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 527-541, January.
    5. Luca Benati, 2008. "Investigating Inflation Persistence Across Monetary Regimes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 1005-1060.
    6. Hetzel, Robert L., 2012. "Central bank accountability and independence: Are they inconsistent?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 616-625.
    7. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, October.
    8. Robert L. Hetzel, 2017. "What Remains of Milton Friedman's Monetarism?," Working Paper 17-9, Federal Reserve Bank of Richmond.
    9. Robert L. Hetzel, 2009. "Should increased regulation of bank risk-taking come from regulators or from the market?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Spr), pages 161-200.
    10. KAMKOUM, Arnaud Cedric, 2023. "The Federal Reserve’s Response to the Global Financial Crisis and its Effects: An Interrupted Time-Series Analysis of the Impact of its Quantitative Easing Programs," Thesis Commons d7pvg, Center for Open Science.
    11. Berlemann, Michael & Hilscher, Kai, 2010. "Effective monetary policy conservatism: A comparison of 11 OECD countries," HWWI Research Papers 2-21, Hamburg Institute of International Economics (HWWI).
    12. Farmer, Roger E. A. & Jang-Ting, Guo, 1995. "The econometrics of indeterminacy: an applied study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 225-271, December.
    13. Crowley, Patrick M., 2010. "Long cycles in growth: explorations using new frequency domain techniques with US data," Bank of Finland Research Discussion Papers 6/2010, Bank of Finland.
    14. Boyan Jovanovic & Peter L. Rousseau, 2002. "Moore's Law and Learning-By-Doing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 346-375, April.
    15. Antonello D'Agostino & Paolo Surico, 2012. "A Century of Inflation Forecasts," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1097-1106, November.
    16. Michael D. Bordo & David C. Wheelock, 2004. "Monetary policy and asset prices: a look back at past U.S. stock market booms," Review, Federal Reserve Bank of St. Louis, vol. 86(Nov), pages 19-44.
    17. Aurélien Goutsmedt, 2021. "From the Stagflation to the Great Inflation: Explaining the US economy of the 1970s," Revue d'économie politique, Dalloz, vol. 131(3), pages 557-582.
    18. Berlemann, Michael & Hielscher, Kai, 2009. "Measuring Effective Monetary Policy Conservatism," Working Paper 89/2009, Helmut Schmidt University, Hamburg.
    19. Kocherlakota, Narayana R., 2019. "Practical policy evaluation," Journal of Monetary Economics, Elsevier, vol. 102(C), pages 29-45.
    20. Kim Abildgren, 2016. "A century of macro-financial linkages," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 8(4), pages 458-471, November.

    More about this item

    Keywords

    Monetary policy; Credit;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedreq:y:2009:i:spr:p:201-233:n:v.95no.2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Pascasio (email available below). General contact details of provider: https://edirc.repec.org/data/frbrius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.