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What Lessons can be learned from the Global Financial Crisis of 2007-08, About the Effectiveness of the Transmission Mechanism of Monetary Policy?
Finance & Accounting
Pages 10 (2510 words)
The global financial crisis, which occurred during the year 2007-2008, has been recognised as one of the worst crises ever faced by the word economy.
The crisis has adversely affected the financial as well as economic stability of a large number of countries, imposing inevitable unfavourable impacts on the financial institutions, national governmental structures and stock market performances worldwide. It had also created a strong adverse effect on the business world, leading to gradually deepening fluctuations in the housing markets and increased unemployment rates in the majorly affected economies such as the US (as the epicentre of the crisis) and the European nations among the majors. It has been identified the most common cause for the crisis situation was associated with the low interest rate policy practiced by the Federal Reserve along with central banks (Grail Research, 2009). As assumed in the transmission mechanism of monetary policy, such violations in the interests rates are likely to lead towards a severe instability in the housing markets, disposable income disbursements in the economy, credit demand, exchange rate fluctuations, stock market volatility and overall wealth generation obstructions (Bank of England, n.d.). ...
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