Unprecedented Actions: The Federal Reserve's Response to the Global Financial Crisis in Historical Perspective

43 Pages Posted: 15 Dec 2014 Last revised: 4 Apr 2015

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Eugene N. White

Rutgers, The State University of New Jersey

Date Written: December 2014

Abstract

Interventions by the Federal Reserve during the financial crisis of 2007-2009 were generally viewed as unprecedented and in violation of the rules—notably Bagehot’s rule—that a central bank should follow to avoid the time-inconsistency problem and moral hazard. Reviewing the evidence for central banks’ crisis management in the U.S., the U.K. and France from the late nineteenth century to the end of the twentieth century, we find that there were precedents for all of the unusual actions taken by the Fed. When these were successful interventions, they followed contingent and target rules that permitted pre-emptive actions to forestall worse crises but were combined with measures to mitigate moral hazard.

Suggested Citation

Mishkin, Frederic S. and White, Eugene N., Unprecedented Actions: The Federal Reserve's Response to the Global Financial Crisis in Historical Perspective (December 2014). NBER Working Paper No. w20737, Available at SSRN: https://ssrn.com/abstract=2538323

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eugene N. White

Rutgers, The State University of New Jersey ( email )

311 North 5th Street
New Brunswick, NJ 08854
United States

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