Credit Crises and the Shortcomings of Traditional Policy Responses

Presentation at the Reserve Bank of India,Mumbai – 2 February 2012

Second International Research Conference on ‘Monetary Policy, Sovereign Debt and Financial Stability – The New Trilemma’.

The objective of this paper is to investigate the origins of the current economic and financial crisis, the worst since the Great Depression, and to draw two  policy lessons. The first of these has to do with policies to extricate ourselves from the current global crisis. Virtually all of the policies followed to date, while supportive of growth in the short term, seem likely to make our current difficulties more intractable over time. The second has to do with the policy changes required to avoid similar problems in the future. In effect, we need a new “macro financial” stability framework to do this.

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Comments on “Monetary policy strategy: Experience during the crisis and lessons learned”

Comments by William White on the papers by Mishkin, Fahr and all-Conference. Confrerence organised in Frankfurt on 18 November 2010 by the European Central Bank.

I wish to begin with a crucial introductory point. According to all of the models commonly in use at central banks and international financial institutions, this could not happen.


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The Mayekawa Lecture: Some Alternative Perspectives on Macroeconomic Theory and Some Policy Implications

The macroeconomic theories and models favored by academics, as well as those used more commonly by policymakers, effectively rule out by assumption economic and financial crises of the sort we are living through. (In particular, the longer-run dangers posed by the rapid expansion of credit and resulting private-sector balance-sheet developments are al- most wholly ignored.)

Publication:  MONETARY AND ECONOMIC STUDIES Date:  1 November 2010


Posted by williamw in Publications