Answer to Question #75300 in Economics of Enterprise for bilp

Question

discuss how bank behaviour and the Fed’s behaviour may have caused money supply growth to be pro-cyclical before the crisis. What has changed since 2008-09?

Answer 1

"The great recession" (the global financial crisis of 2008-2009) has led to changes in the activities of the fed. During the crisis, the monetary authorities faced extraordinary difficulties. It was impossible to regulate the markets by the previous methods. There was a threat of deflation. The US financial system (followed by other countries) began pumping liquidity into the financial system. In the future, the US Federal reserve moved to a policy of "quantitative easing". The fed began to play a more important role in the US economy than before the crisis. Before the crisis, the US Federal reserve was mainly focused on inflation control. After the crisis began, the fed lowered its discount rate several times. So same happened "quantitative easing." The balance sheet structure has changed dramatically. The balance has increased dramatically. In addition, the structure has also changed. Before the crisis, the portfolio had securities of reliable and low – income financial instruments-government bonds. During the crisis, most of the assets amounted to loans from the fed to financial market participants. After the end of the crisis, purchases of reliable and low – income financial instruments-government bonds-began to grow again.