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A Comparison of the Fed’s and ECB’s Strategies during the Subprime Crisis

aAix-Marseille Université and Aix-Marseille School of Economics (GREQAM & CNRS & EHESS), Château Lafarge, Route des Milles, 13290, Aix-en-Provence Les Milles, e-mail:
bAix-Marseille Université and Aix-Marseille School of Economics (GREQAM & CNRS & EHESS), Banque de France, CEPII. Château Lafarge, Route des Milles, 13290, Aix-en-Provence Les Milles, e-mail:

Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons

ISBN: 978-1-78441-780-2, eISBN: 978-1-78441-779-6

Publication date: 1 July 2015

Abstract

This chapter proposes a comparative analysis of the monetary policies undertaken by the Federal Reserve Board and the European Central Bank after the 2008 subprime crisis. We point out the twin nature of the financial crises in Europe in comparison with the US crises: in addition to the role of bank funding, the euro area countries have also experienced a structural problem of balance of payment disequilibria. This explains why in the early stages of the subprime crisis, the Fed has succeeded in tackling the illiquidity problems facing the banking sector, while the ECB did not. The Fed could then focus on tackling the recession in the real sector by adopting quantitative easing policies to exert downward pressure on the long-term interest-rate. In the euro area quantitative easing policies came later, in 2013. Even the forward guidance policies have been different between the two central banks. Unlike the ECB, the Fed has gone through diverse forward guidance policies: qualitative, calendar-based, and state-contingent. The chapter proposes a new survey of the monetary policies after the subprime crisis by comparing two strategies in different contexts: the United States and the euro area.

Keywords

Citation

Aloy, M. and Dufrénot, G. (2015), "A Comparison of the Fed’s and ECB’s Strategies during the Subprime Crisis", Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons (International Symposia in Economic Theory and Econometrics, Vol. 24), Emerald Group Publishing Limited, Leeds, pp. 419-449. https://doi.org/10.1108/S1571-038620150000024024

Publisher

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Emerald Group Publishing Limited

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