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

NBER Working Paper No. 20737

Issued in December 2014

NBER Program(s):Development of the American Economy, Economic Fluctuations and Growth, Monetary Economics



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.

Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w20737

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