Economic Policy Reactions.pptVIP

Economic Policy Implications in View of the Current Crisis Philip Arestis Cambridge Centre for Economic and Public Policy Department of Land Economy University of Cambridge University of the Basque Country Department of Applied Economics V Presentation 1. Introduction: We discuss in this session the implications of the ‘great recession’ since August 2007, essentially from the point of view of economic policy reaction around the world; 2. Economic Policy Reactions 3. Regulatory and Policy Implications 4. Summary and Conclusions Economic Policy Reactions Early August 2007, when the subprime crisis began to spread outside mortgage and real-estate finance central banks around the world turned their attention to enhancing the liquidity of their banking sectors; A unique element of the ‘great recession’ is the activist role played by central banks and Treasuries around the world; Monetary and fiscal policies have been employed extensively and in an unparalleled way in the history of similar crises; Economic Policy Reactions The Fed and the ECB were probably the first to commence it. The ECB began to lend to the EMU banks through the discount window or fine-tuning operations and the Fed through its repo operations; At the same time the Bank of England, Bank of Canada, and the Bank of Japan announced similar measures to address elevated pressures in the short-term funding markets; Economic Policy Reactions In December 2007, the Fed along with the Bank of England, Bank of Canada, the Bank of Japan, the ECB and the Swiss National Bank introduced the ‘Term Auction Facility’ (TAF); This is a scheme whereby the Fed, and the other central banks, auction term funds to depository institutions under collateralised agreements; Also under this scheme the Fed allows temporary dollar swaps to other central banks, so that the latter can pass on to counterparties in local operations; Economic Policy Reactions The crisis worsened especially in March 2008 and subsequently;