Did a Crash in Money Growth Cause the Global Slump?
Edited by Tim Congdon
Chapter 6: Why has monetary policy not worked as expected? Some interactions between financial regulation, credit and money
The tightening of bank regulation from October 2008 included a massive increase in capital/asset ratios in the leading nations. This may have been needed to restore banks’ credit-worthiness, notably in inter-bank dealings. However, the consequent ‘deleveraging’ was one reason that a surge in the monetary base did not lead – as the textbooks envisaged – to a corresponding surge in the quantity of money, broadly defined. Monetary policy did not work as expected.
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