The Empirical Analysis on The FED's Monetary Policy in Great Depression and Subprime Mortgage Crisis

• Main Authors: Liu, Yen-Ting, 劉彥廷
• Other Authors: Guan, De-Xing
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/28830512949411744648

碩士 === 國立臺北大學 === 經濟學系 === 103 === During a great economic crisis, we often observe a banking crisis, which can be realized as a mechanism that extends the problem scale. The reason why banking system cannot operate well is the lack of liquidity. Since the central bank (FED) must be the lender of last resort to prevent the bank failure, we may focus on whether monetary policies can provide the liquidity effectively and immediately or not. In this thesis, I pick FED’s policies in the periods of Great Depression and Subprime Mortgage Crisis as my study targets. In the chapter of Great Depression, the purpose of doing this policy is to adjust the rediscount rate; after the rate (price) changed, the bank would choose the money quantities borrowed from the central bank. The effect is based on the power of money demand. In the positive analysis, the result shows that the policy cannot provide the liquidity effectively and immediately. In the chapter of Subprime Mortgage Crisis, we can see FED used open market purchase to buy government bonds and other securities to increase money supply. The policy affects not only the interest rate and money base but the bond market. In the positive analysis, I add some discusses about government bonds since the quantitative easing policy is different from the rediscount rate policy. The analysis can be divided into three parts; at the first part, we observe the change of interest rate while the money supply increases; at the second part, we try to see how the money demand influenced by the lower interest rate; and at the third part, we are going to figure out the limitation of the government’s funding ability when FED chooses the quantitative easing policy. In the results, we can say the policy can lower the rates immediately, but the lower interest rate seems not to increase the money demand; meanwhile, in order to avoid the policy-contradiction, the quantity of funding through bond-issue must be limited. In conclusion, if the goal of FED is trying to stop the banking crisis, the quantitative easing policy can provide market liquidity more directly than the rediscount rate policy. But it cannot work out if the goal of using quantitative easing policy is to increase the money demand by lowing the interest rate, no matter the results is derived from my model or the positive analysis. Besides, the government must lose some funding ability.