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Journal of Economic Perspectives: Vol. 23 No. 1 (Winter 2009)

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Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis

Article Citation

Cecchetti, Stephen G. 2009. "Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis." Journal of Economic Perspectives, 23(1): 51-75.

DOI: 10.1257/jep.23.1.51

Abstract

Realizing that their traditional instruments were inadequate for responding to the crisis that began on August 9, 2007, Federal Reserve officials improvised. Beginning in mid-December 2007, they implemented a series of changes directed at ensuring that liquidity would be distributed to those institutions that needed it most. Conceptually, this meant America's central bankers shifted from focusing solely on the size of their balance sheet, which they use to keep the overnight interbank lending rate close to their chosen target, to manipulating the composition of their assets as well. In this paper, I examine the Federal Reserve's conventional and unconventional responses to the financial crisis of 2007-2008.

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Authors

Cecchetti, Stephen G. (Bank for International Settlements)

JEL Classifications

E32: Business Fluctuations; Cycles
E52: Monetary Policy
E58: Central Banks and Their Policies
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation

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