Unprecedented Actions: The Federal Reserve’s Response to the Global Financial Crisis in Historical Perspective
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.
Presented originally at the conference, “The Federal Reserve System’s Role in the Global Economy: An Historical Perspective” at the Federal Reserve Bank of Dallas, September 18-19, 2014. We particularly want to thank Michael Bordo and Steven Kamin for their helpful comments. We are also grateful for suggestions made by participants at the conference, the Columbia University Macroeconomics workshop and the Banque de France. The views expressed here are our own and are not necessarily those of Columbia University, Rutgers University, or the National Bureau of Economic Research. Disclosure of outside compensated activities for Mishkin can be found at http://www0.gsb.columbia.edu/faculty/fmishkin/
Frederic S. Mishkin
Frederic S. Mishkin
DISCLOSURE OF OUTSIDE COMPENSATED ACTIVITIES
(2005 to present, excludes honoraria of $1,000 or less and royalty income from books)
Consulting: Federal Reserve Bank of New York, Bank of Korea;
National Bureau of Economic Research, FDIC, Interamerican
Development Bank; 4 hedge funds, BTG Pactual, Gavea
Investimentos; Reserve Bank of Australia, Federal Reserve Bank
of San Francisco, Einaudi Institute, Bank of Italy
Teaching: Study Center Gerzensee, Swiss National Bank
Speeches: Lexington Partners; Tudor Investment, Brevan
Howard, UBS, Pension Real Estate Association; Goodwin
Proctor, Penn State University, Villanova University, Shroeder’s
Investment Management, Premiere, Inc, Muira Global, Bidvest,
NRUCF, BTG Asset Management, Futures Industry Association,
ACLI, Handelsbanken, National Business Travel Association,
Goldman Sachs, Urban Land Institute, Deloitte, Barclays Capital,
CME Group; Barclays Capiital, BNP Paribas, Fidelity
Investments, Deutsche Bank,, Freeman and Co., Bank America,
Treasury Mangement Association, International Monetary Fund;
Kairos Investments, Deloitte and Touche, Instituto para el
Desarrollo Empreserial de lat Argentina, Handelsbanken,
Danske Capital, WIPRO, University of Calgary, Pictet & Cie,
Zurich Insurance Company, Central Bank of Chile,
Manhattanville College, Deloitte and Touche, RBC Capital
Markets, Handelsbanken, Elliot Management, Arizona State
University, Goldman Sachs, Investment Management Consultants
Association, Griswold Center for Economic Policy Studies at
Co-Director, U.S. Monetary Policy Forum
Advisory Committee, Alfred P. Sloan Foundation’s Economic
and Education Program
National Bureau of Economic Research: “Two Decades of
Japanese Monetary Policy and the Deflation Problem,” (with
Takatoshi Ito) in Takatoshi Ito and Andrew Rose, eds., Monetary
Policy Under Very Low Inflation Rates, NBER East Asia Seminar
on Economics, Vol. 15 (University of Chicago Press: Chicago,
2006), pp. 131-193.
Sveriges Riksdag (Swedish parliament): An Evaluation of
Swedish Monetary Policy Between 1995 and 2005 (with
Francesco Giavazzi) (Sveriges Riksdag: Stockholm, Sweden
Icelandic Chamber of Commerce: with Tryggvi Herbertson,
Financial Stability in Iceland (Reyjavik: Icelandic Chamber of
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Bank of Spain: “Financial Stability and Globalization: Getting It
Right,” in Santiago Fernandez de Lis and Fernando Restoy, eds.,
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Central Bank of Chile: ““Does Inflation Targeting Matter?” (with
Klaus Schmidt-Hebbel) in Frederic S. Mishkin and Klaus Scmidt-
Hebbel, eds., Monetary Policy Under Inflation Targeting
(Central Bank of Chile: Santiago 2007), pp. 291-372.
Swiss National Bank: “Inflation Targeting: True Progress or
Repackaging of an Old Idea?” in Swiss National Bank, ed., The
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a Science?” in Deutsche Bundesbank, ed., Monetary Policy Over
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and the Federal Reserve,” NBER Macro Annual, 2009, pp. 495-
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2007-2009,” Reuven Glick and Mark M. Spiegel, eds. Asia and
the Global Financial Crisis, Asia Economic Policy Conference
(San Francisco: Federal Reserve Bank of San Francisco, 2009),
U.S. Monetary Policy Forum: “Financial Conditions Indexes: A
Fresh Look After the Financial Crisis,” (with Jan Hatzius, Peter
Hooper, Frederic Mishkin, Kermit L. Schoenholtz and Mark W.
Watson) U.S. Monetary Policy Forum (Chicago: Chicago Booth
Initiative on Global Markets, 2010) pp. 3-59.
Brookings Institution: “Comments on Campbell, Shiller, and
Viceira” Brookings Papers on Economic Activity (forthcoming).
National Bureau of Economic Research: “Discussion of Takatoshi
Ito’s “Great Inflation and Central Bank Independence in Japan,” in
Michael Bordo and Athanasios Orphanides, editors, The Great
Inflation (University of Chicago Press: Chicago, forthcoming.)
European Central Bank: “Monetary Policy Strategy: Lessons
From the Crisis” in Monetary Policy Revisited: Lessons from the
Crisis (European Central Bank: Frankfurt, forthcoming.)
Bank of Korea: “Macroprudential Policy in Emerging Market
Economies” 2010, and conference version, Federal Reserve Bank
of San Francisco.
. Reserve Bank of Australia: “How Should Central Banks Respond
to Asset-Price Bubbles? The ‘Lean’ versus ‘Clean’ Debate After
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American Enterprise Institute: “The Federal Reserve After the
Crisis,” in Vincent Reinhart, editor, No Way Out: Persistent
Government Interventions in the Great Contraction (Washington,
D.C.: American Enterprise Institute, forthcoming 2012).
Federal Reserve Bank of San Francisco: “Macroprudential
Policies in Open Emerging Market Economies” (with Joon-Ho
Hahm, Hyun Song Shin and Kwanho Shin) in Reuven Glick and
Mark M. Spiegel, eds. Asia in the Post-Crisis Economy, 2011
Asia Economic Policy Conference (San Francisco: Federal
Reserve Bank of San Francisco, 2012) pp. 63-114.
Central Bank of Chile: “Central Banking After the Crisis,” in
Central Bank of Chile, Monetary Policy and Financial Stability,
Sixteenth 16th Annual Conference of the Central Bank of Chile
(Central Bank of Chile: Santiago, forthcoming)
Pictet and Cie: “Monetary Policy is Evolving,” Perspectives
(Special Edition 2013) , pp. 14-16.
U.S. Monetary Policy Forum: “Crunch Time: Fiscal Crises and
the Role of Monetary Policy,” U.S. Monetary Policy Forum
(Chicago: Chicago Booth Initiative on Global Markets, 2013), pp.
Exit Strategy (with Alan Blinder, Donald Kohn and Thomas
Jordan) Geneva Reports on the World Economy 15 (International
Center for Monetary and Banking Studies and Centre for
Economic Policy Research: Geneva and London, 2013).
“Commentary: Surprising Similarities: Recent Monetary
Regimes of Small Economies” in Reuven Glick and Mark M.
Spiegel, eds., Prospects for Asia and the Global Economy, 2013
Asia Economic Policy Conference (San Francisco: Federal
Reserve Bank of San Francisco, 2013), pp. 193-198.
“Unprecedented Actions: The Federal Reserve’s Response to the
Global Financial Crisis in Historical Perspective,” Mark Wynne
and Michael Bordo, eds., The Federal Reserve System’s Role in
the Global Economy: An Historical Perspective (Federal Reserve
Bank of Dallas, Dallas, forthcoming).