Working Paper

Unprecedented actions: the Federal Reserve’s response to the global financial crisis in historical perspective

Abstract: 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- tive actions to forestall worse crises but were combined with measures to mitigate moral hazard.

JEL Classification: E58; G01; N10; N20;

https://doi.org/10.24149/gwp209

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2014-10-01

Number: 209

Note: Published as: Mishkin, Frederic S. and Eugene N. White (2016), "Unprecedented Actions: The Federal Reserve's Response to the Global Financial Crisis in Historical Perspective," in The Federal Reserve's Role in the Global Economy: A Historical Perspective, ed. Michael D. Bordo and Mark A. Wynne (New York, NY: Cambridge University Press), 220-258.