Central Banks and Financial Markets

Central Banks and Financial Markets

The Declining Power of US Monetary Policy

Hasan Cömert

In the wake of the financial crisis of 2008, there has been increasing debate over the appropriate role of central banks in mitigating economic disaster. This timely volume combines detailed historical and econometric analyses to explore the profound changes that occurred within the US financial system from the 1980s to the present, and shows how these changes have affected the US economy.

Chapter 1: Introduction

Hasan Cömert

Subjects: economics and finance, financial economics and regulation

Extract

Since the 1980s, financial systems in developing and developed countries have been evolving with enormous speed. Most restrictions on the financial system have been lifted. Many potentially restrictive laws have been interpreted for the benefit of financial markets. Financial integration reached unprecedented levels. Many new financial techniques and products were developed. Major financial markets have experienced a transformation into a much more complex, more opaque and bigger system. In industrialized countries especially, financial systems are no longer based on the loan-deposit nexus dominated by deposit institutions. During this period, central banking in many countries underwent several important changes too. Before the 1980s, central banks used to utilize various direct and indirect tools with the help of a relatively firm regulatory framework.