econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 18 July 2015

Money And Velocity During Financial Crisis: From The Great Depression To The Great Recession

by Dallas Fed

-- this post authored by Richard G. Anderson, Michael Bordo, and John V. Duca

The Great Depression and the Great Recession are acknowledged as the defining American financial crises of the past century. It has been well-understood, at least since Bagehot, that extraordinary monetary policies are necessary as a crisis develops and later must be unwound as the crisis wanes. Best-practice monetary policy is to initially accommodate the large shifts in liquidity demand engendered by financial crises, due to flights-to-quality and elevated risk prema.

Sharp increases in risk premia (tracked, for example, by the spread between yields on Baa corporate bonds and 10-year Treasury bonds, Figure 1) and decreases in M2's velocity (Figure 2) were signatures of the onset of the Great Depression and the Great Recession.

As the Great Depression abated, for example, risk premia decreased and velocity returned to more typical levels (Figure 1). Today, the Federal Reserve faces the challenge of returning monetary policy to a more normal stance following the Great Recession; a first step was taken this month (October 2014) by ending the Large Scale Asset Purchase program. Yet, uncertainty remains regarding the correct path for policy. As the macroeconomic effects of the most-recent crisis fade, for example, the Federal Reserve must unwind the aggregate demand stimulus of pushing the federal funds rate to zero and of asset purchases that have quadrupled its balance sheet. At the same time, policymakers must seek to prevent the money multiplier from increasing rapidly when risk premia and velocity revert to more traditional levels: the historical record shows that money demand will retreat in response to falling risk premia and increasing opportunity costs vis-à-vis bond yields. Resulting increases in velocity - not just broad money growth - along with understanding possible effects of financial reform will complicate interpreting movements in money, and hence challenge a successful exit. Our study suggests that the behavior of money demand before, during, and after the two largest financial crises of the past century - the Great Depression and the Great Recession - provides some guidance.

[click on image below to continue reading]

Source: http://www.dallasfed.org/assets/documents/research/papers/2015/wp1503.pdf

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Surprising Pevalence of Surprises in Export Specialisation
The Destruction of the Existing Workforce
News Blog
The Worst Countries For Drinking During Pregnancy
What We Read Today 24 January 2017
Best Ways To Protect Yourself Online
Richmond Fed Manufacturing Survey Improves In January 2017.
December 2016 Headline Existing Home Sales Hampered By Historically Low Inventory Levels
A New Order Of The Ages
How Bond Investors Were Fooled Twice
Infographic Of The Day: Crowdfunding
Early Headlines: Asia Stocks Mixed, Dollar Down, Oil Up, China May Replace US In TPP, Trump Freezes Feds' Hiring, Trump Files 'Secret' Transfer Papers, May To Visit China And More
January 23, 2017 Weather and Climate Report - NOAA Continues ENSO Neutral Denial
Documentary Of The Week: China's Wealth, Collapse, And Environmental Nightmare
Where Trump Stands On Twitter
Is This Really The Final Word On Whether Calorie-restricted Diets Make You Live Longer?
Investing Blog
Investing,com Weekly Wrap-up 24 January 2017
Netflix And Co. Surpass DVD And Blu-ray Sales
Opinion Blog
Bill Maher 2017 Season Premier
Trumping World Trade
Precious Metals Blog
A Slow Start For The Week Would Be Constructive For Gold
Live Markets
24Jan2017 Market Close: Wall Street Exuberant Closing With New Historic Highs, Trump Effect Still Working, Analysts Claim Another 5 Percent Higher Possible
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved