Monetary Policy, Financial Regulation and Financial Stability: A Comparison between the Fed and the ECB

31 Pages Posted: 4 May 2020

See all articles by Gunther Schnabl

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Nils Sonnenberg

University of Leipzig

Date Written: April 6, 2020

Abstract

The paper analyses in light of Austrian and Keynesian economic theory the impact of conventional and unconventional monetary policies as therapies for financial crises. It compares the financial market stabilization measures of the Federal Reserve System and the European System of Central Banks in response to the US subprime crisis and the European financial and debt crisis. It is shown that the Federal Reserve System’s crisis measures were more directed towards stabilizing the banking system, whereas the European Central Bank had a stronger focus on the stabilization of the debt affordability of euro area crisis countries. In both cases, household credit growth remained under control despite renewed monetary expansion, while new imbalances emerged in the corporate sector. In the euro area, loose monetary policy had a destabilizing impact on the financial sector.

Keywords: Financial cycles, financial crisis, financial stability, Hayek, Keynes, monetary policy

JEL Classification: B53, E12, E14, E30, E44, E58, G10, G20, H30, H50

Suggested Citation

Schnabl, Gunther and Sonnenberg, Nils, Monetary Policy, Financial Regulation and Financial Stability: A Comparison between the Fed and the ECB (April 6, 2020). Available at SSRN: https://ssrn.com/abstract=3571200 or http://dx.doi.org/10.2139/ssrn.3571200

Gunther Schnabl (Contact Author)

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

Nils Sonnenberg

University of Leipzig ( email )

Grimmaische Straße 12
Leipzig, 04109
Germany

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