Monetary Policy in the 2008-2009 Recession

FRB Richmond Economic Quarterly, Vol. 95, No. 2, Spring 2009, pp. 201-233

33 Pages Posted: 13 Dec 2012

See all articles by Robert L. Hetzel

Robert L. Hetzel

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2009

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

Hetzel, Robert L., Monetary Policy in the 2008-2009 Recession (2009). FRB Richmond Economic Quarterly, Vol. 95, No. 2, Spring 2009, pp. 201-233, Available at SSRN: https://ssrn.com/abstract=2188500

Robert L. Hetzel (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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