Monetary policy before the crisis
|Publication:||Policy Letter No. 11, 2011|
|Topic Area:||Macro Finance|
|Keywords:||monetary policy, real interest rates, financial crisis|
Many observers argue that excessively expansionary monetary policy led to the recent global financial crisis. This column argues that non-monetary forces drove down real interest rates and that lowering nominal rates was the correct response. However, central bankers and other regulators vastly underestimated the risks to financial stability accompanying low short-term interest rates.
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