Monetary Policy, Financial Regulation and Financial Stability: A Comparison between the Fed and the ECB in the Wake of the Global Financial Crisis

Gunther Schnabl and Sonnenberg Nils ()
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Sonnenberg Nils: Institut für Wirtschaftspolitik, Universität LeipzigLeipzigGermany

ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, 2020, vol. 71, issue 1, 180-210

Abstract: The paper discusses in light of Austrian and Keynesian economic theory the impact of conventional and unconventional monetary policies as therapies for financial crises. It reviews the financial market stabilization measures of the Federal Reserve System and the Eurosystem in response to the US subprime crisis and the European financial and debt crisis. It shows that stabilization measures both in the US and the euro area are based on Keynesian thinking, whereas longer-term consequences of financial stabilization measures tend to be neglected. It is argued that the Federal Reserve System’s crisis measures were more directed towards stabilizing the banking system, whereas the European Central Bank first and foremost focused on debt sustainability of euro area crisis countries. In both cases, household credit growth remained under control despite renewed monetary expansion, while new imbalances emerged in the banking and corporate sector as suggested by Austrian economic theory.

Keywords: Financial Cycles; Financial Crisis; Financial Stability; Hayek; Keynes; Monetary Policy; Finanzzyklen; Finanzkrise; Finanzstabilität; Hayek; Keynes; Geldpolitik (search for similar items in EconPapers)
JEL-codes: B53 E12 E14 E30 E44 E58 G10 G20 H30 H50 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/ordo-2021-0002

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