Money in the Great Recession
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Money in the Great Recession

Did a Crash in Money Growth Cause the Global Slump?

Edited by Tim Congdon

No issue is more fundamental in contemporary macroeconomics than the causes of the recent Great Recession. The standard view is that the banks were to blame because they took on too much risk, ‘went bust’ and had to be bailed out by governments. But very few banks actually had losses in excess of their capital. The counter-argument presented in this stimulating new book is that the Great Recession was in fact caused by a collapse in the rate of change of the quantity of money. The book’s argument echoes that on the causes of the Great Depression made by Friedman and Schwartz in their classic book A Monetary History of the United States.
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Chapter 4: Have central banks forgotten about money? The case of the European Central Bank, 1999–2014

Juan E. Castañeda and Tim Congdon


At the start of the European single currency in 1999, the ECB’s intellectual framework owed much to the Bundesbank, with heavy emphasis on the role of money in the determination of macro outcomes. From 2003 this emphasis was diluted, and for a few years high money growth was associated with asset price buoyancy and incipient inflationary pressure. But from 2008 the key authorities – including the ECB – focused on ‘tidying-up the banks’, almost regardless of the consequences for the quantity of money. Extreme monetary instability in the Eurozone ‘periphery’ was one consequence.

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