Working Paper: CEPR ID: DP8125
Authors: Domenico Giannone; Michele Lenza; Huw Pill; Lucrezia Reichlin
Abstract: Standard accounts of the Great Depression attribute an important causal role to monetary policy errors in accounting for the catastrophic collapse in economic activity observed in the early 1930s. While views vary on the relative importance of money versus credit contraction in the propagation of this policy error to the wider economy and ultimately price developments, a broad consensus exists in the economics profession around the view that the collapse in financial intermediation was a crucial intermediary step. What lessons have monetary policy makers taken from this episode? And how have they informed the conduct of monetary policy by leading central banks in recent times? This paper sets out to address these questions, in the context of the financial crisis of 2008-09 and with application to the euro area.
Keywords: credit; great recession; monetary policy shocks; money; nonstandard monetary policy
JEL Codes: E32; E4; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonstandard monetary policy measures (E52) | financial intermediation (G20) |
| nonstandard monetary policy measures (E52) | liquidity and credit conditions (E51) |
| financial shocks (F65) | behavior of key financial aggregates (E44) |
| behavior of key financial aggregates (E44) | financial intermediation (G20) |
| nonstandard monetary policy measures (E52) | broad money (M3) (E51) |