NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unprecedented Actions: The Federal Reserve's Response to the Global Financial Crisis in Historical Perspective

Frederic S. Mishkin, Eugene N. White

NBER Working Paper No. 20737
Issued in December 2014
NBER Program(s):   DAE   EFG   ME

Interventions by the Federal Reserve during the financial crisis of 2007-2009 were generally viewed as unprecedented and in violation of the rules—notably Bagehot’s rule—that a central bank should follow to avoid the time-inconsistency problem and moral hazard. Reviewing the evidence for central banks’ crisis management in the U.S., the U.K. and France from the late nineteenth century to the end of the twentieth century, we find that there were precedents for all of the unusual actions taken by the Fed. When these were successful interventions, they followed contingent and target rules that permitted pre-emptive actions to forestall worse crises but were combined with measures to mitigate moral hazard.

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Document Object Identifier (DOI): 10.3386/w20737

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