Economic Disturbances and Equilibrium in an Integrated Global Economy

Chapter 36

The Fed’s Crisis Response

Abstract

The Fed’s experiences accommodating unanticipated shifts in money demand are at best a mixed record. Alan Greenspan gets credit for anticipating the productivity increases of the 1990 and the Y2K mishap. But that did not deter the Fed from acting quickly as the banking system’s deposit creation was collapsing. The Fed engaged in aggressive open market operations that resulted in a tremendous expansion of its balance sheet. The Fed’s actions increased the monetary base dramatically, and that increase effectively offsets the decline in the money and credit multipliers. In so doing, the Fed arrested a potential deflation even if it did not usher a strong recovery.

Keywords

Asset-Backed Commercial Paper ...