Advances in Economics, Management and Political Sciences

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Proceedings of the 2nd International Conference on Financial Technology and Business Analysis

Series Vol. 73 , 05 March 2024


Open Access | Article

The Relations Among Loose Monetary Policy and the Housing Bubble and the Financial Crisis of 2008

Xinlin Li * 1
1 King Edwards School Witley, Wormley, Godalming GU8 5SG, United Kingdom

* Author to whom correspondence should be addressed.

Advances in Economics, Management and Political Sciences, Vol. 73, 127-131
Published 05 March 2024. © 2023 The Author(s). Published by EWA Publishing
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Citation Xinlin Li. The Relations Among Loose Monetary Policy and the Housing Bubble and the Financial Crisis of 2008. AEMPS (2024) Vol. 73: 127-131. DOI: 10.54254/2754-1169/73/20231508.

Abstract

This paper examines whether the loose monetary policy was a key factor in the 2006 housing bubble and then led to the financial crisis of 2008. It analyses the situation of the US economy during the early 2000s. It presents how the role of the Federal Reserve’s Monetary strategies such as the Expansionary Monetary Policy created an easy credit environment and investors' overconfidence in the US. Furthermore, this paper delves into the Taylor rule and explores the principle for adjusting nominal interest rates based on economic fluctuation and inflation. This framework is crucial in understanding the policy decisions of that time. In addition, this paper outlines the different perspectives on the Monetary Policy from the John B. Taylor and Bernanke who was defend for the Federal Reserve that fears of deflation and the restrictions brought about by the liquidity trap during that time. The paper also reveals labour market, including unemployment and output gaps, indicated economic strength but also inflationary pressure. In conclusion, this paper emphasizes the importance of a multifaced approach to monetary policy analysis in understanding the intricate factors that led to this pivotal event in economic history.

Keywords

Monetary Policy, Financial Crisis 2008, Housing Bubble 2006, Taylor rule, Inflation and Ecocnomic Growth

References

1. Taylor, J. (2009). “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong,” Critical Review: A Journal of Politics and Society 21, pp. 341-364.

2. Board of Governors of the Federal Reserve System. (2023). Overview of the Federal Reserve System. Retrieved from:

3. Dokko, J., Doyle, B., Kiley, M., Kim, J., Sherlund, S., Sim, J. and S. Van den Heuvel (2011). “Monetary Policy and the Global Housing Bubble,” Economic Policy 26, pp. 235-283.

4. Jones, C. (2020). Macroeconomics (5th edition). W.W. Norton.

5. Bernanke, B. (2010). “Monetary Policy and the Housing Bubble,” Speech at the AEA Meeting, Atlanta, Georgia

6. Taylor, J. (1999). “A Historical Analysis of Monetary Policy Rules,’’ in Monetary Policy Rules (John Taylor editor), pp. 319-348, University of Chicago Press.

7. Taylor, J. (1993). “Discretion versus Policy Rules in Practice,’’ Carnegie-Rochester Conference Series in Public Policy 39, pp. 195-214.

Data Availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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Volume Title
Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
ISBN (Print)
978-1-83558-319-7
ISBN (Online)
978-1-83558-320-3
Published Date
05 March 2024
Series
Advances in Economics, Management and Political Sciences
ISSN (Print)
2754-1169
ISSN (Online)
2754-1177
DOI
10.54254/2754-1169/73/20231508
Copyright
© 2023 The Author(s)
Open Access
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

Copyright © 2023 EWA Publishing. Unless Otherwise Stated