Monetary policy and the twin crises |
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| Institution: | 1. College of Information Science and Engineering, Northeastern University, Shenyang 110819, China;2. State Key Laboratory of Synthetical Automation for Process Industries, Northeastern University, Shenyang 110819, China;3. Information Engineering School, Shenyang University of Chemical Technology, Shenyang 110142, China;1. Singapore-ETH Centre, ETH Zurich, 1 CREATE Way, #06-01 CREATE Tower, 138602 Singapore;2. Department of Management, Technology, and Economics, ETH Zurich, Scheuchzerstrasse 7, 8092 Zurich, Switzerland;3. Swiss Finance Institute, c/o University of Geneva, Geneva, Switzerland;1. Department of Finance, College of Management, National Taiwan University, Taipei, Taiwan;2. Department of Finance, College of Management, Asia University, Taichung, Taiwan;3. Department of Distribution Management, College of Information and Distribution Science, National Taichung University of Science and Technology, Taichung, Taiwan |
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| Abstract: | After presenting a brief overview of the recent financial crisis and the European debt crisis that followed in its wake, this paper goes on discuss monetary policy in the United States, the United Kingdom and the Euro bloc prior to and during the course of the two crises. The paper presents historical evidence for the three areas on the relationships linking the volatilities of output, inflation and monetary growth. In all three these relations are strongly positive. There is, therefore, no tradeoff between inflation and output volatility; the two move up and down together. Both, moreover, move up and down with the volatility of monetary growth. Viewed from this perspective, the increased volatilities of money supplies and the monetary base in the United States, the United Kingdom and the Euro bloc over the last half decade pose problems. |
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| Keywords: | Monetary policy Money multiplier Financial crisis European debt crisis E32 E4 E5 |
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