Monetary policy responses to the global crisis : a comparative analysis of the ECB and the federal reserve

Abstract

In 2007, an asset bubble, specifically the subprime mortgage crisis, led to a creation of a global recession which was almost comparable to the great depression of the 1930s. Nobody anticipated or forecasted successfully what was going to happen for that period. As money markets froze, economic indicators started to show some weak points of the major developed countries in the world including the United States of America and the European Union. Authorities had to intervene in an attempt to calm down the financial tensions which arose. Since Monetary Economics is one of my favourite sectors of Economics I chose this title to carry out my dissertation. This project points out, compares and contrasts the main policy responses of both the Federal Reserve Bank and the European central bank and evaluates their impact on the respective US and EU economies. Many of these responses were non conventional monetary policies since the circumstances which the crisis brought about had a very novel nature. Although the actions taken by authorities had a significant impact on dampening the effects of an otherwise much stronger recession, they weren't enough to prevent it in the first place. As we are gradually recovering, this remark implies that a reform is appropriate. Banking regulation and supervision must be enhanced and there has to be more coordination between the major central banks so as to eliminate the possibility of the event occurring again in the future.