Chapter 4Policy Responses

Whenever a crisis occurs, monetary and fiscal policy makers react. Their response is motivated by objectives such as an inflation target, political reelection, or even an emergency. Since the 1990s, when the financial crisis intensified in nature, the policy response has become more intense as well. This is a direct result of the fact that economies are becoming increasingly asset-financed. As the deregulation of banking globally allowed for more entrepreneurship in the creation of credit, since the 1970s, many economies have transformed into capitalists economies. Hyman Minsky describes this well in his financial instability hypothesis: “the characterization of the economy as a capitalist economy with expensive capital ...

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