The Federal Reserve

The Federal Reserve’s Response to the Great Depression

In this video, Chairman Bernanke describes the 1920s as the economic precursor to the Great Depression. Further, he describes the economic and financial conditions that characterized the Great Depression and explores its primary causes.

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As you review the video, consider the following questions:

•What were the economic conditions that characterized the Great Depression?

•What were the primary causes of the Great Depression?

The Federal Reserve’s Response to the Great Depression

In this video, Chairman Bernanke discusses the Federal Reserve’s response to the Great Depression, evaluating the strengths and weaknesses of the Fed’s attempts to mitigate the economic and financial crises that characterized and prolonged the Great Depression. He addresses policies put in place by the Roosevelt Administration which eased the problems that exacerbated and prolonged the Great Depression. Finally, he discusses the policy lessons learned from the Great Depression.


What was the “liquidationist” theory and how did it inform the Fed’s policy response to the Great Depression?

What were the Fed’s monetary and financial policy responses to the Great Depression?

How might it be argued that the Fed’s monetary and financial policies prolonged and exacerbated the Great Depression?

What economic policies did President Roosevelt put in place which helped ease the problems of the Great Depression?

What policy lessons can be learned from the Great Depression?

Federal Reserve Independence and Economic Policy

In this video, Chairman Bernanke discusses the evolving role of the Fed as the United States emerged from the Great Depression and World War II. The Fed gained new independence in determining interest rates at this time and followed a monetary policy that sought to keep both inflation and economic growth reasonably stable.


What was the Fed-Treasury Accord of 1951?

How did the Fed-Treasury Accord help improve the Fed’s ability to manage monetary policy?

What was the “lean against the wind” monetary policy, and what were the motivations behind this policy

The Great Inflation and Volcker Disinflation

In this video, Chairman Bernanke examines the Fed’s approach to monetary policy, especially in terms of reacting to changing rates of inflation. He discusses the successes and failures of monetary policy from the 1960s through the 1980s and examines the lessons learned from this era for fighting inflation.

As you review the video, consider the follwing questions:

Why was monetary policy so easy in the mid-1960s and 1970s, causing a spike in inflation?

How did the Fed under Paul Volcker change monetary policy to break the cycle of inflation that was so prevalent in the mid-1960s and 1970s?

What were the negative side effects of the Fed’s inflation-fighting policy?

The Great Moderation

In this video, Chairman Bernanke examines how the Federal Reserve’s economic policies resulted in a period of steady economic growth for the United States from the mid-1980s through 2007.


Why was the time period from the mid-1980s through the mid-2000s referred to as the “Great Moderation”?

How did the Federal Reserve’s economic policies under Chairman Volcker in the 1970s and 1980s contribute to the Great Moderation

The Role of the Federal Reserve in the U.S. Economy

in this video, Chairman Bernanke explains the basic idea of the central bank and the role it plays in fostering a stable economy. He describes the central bank’s tools for maintaining a stable financial system and a healthy economy.


What is a central bank?

What is the economic and financial mission of a central bank?

What tools does a central bank use to promote economic and financial stability?

What is a "financial panic"? How does the Fed calm a financial panic as the "lender of last resort"?

What is Bagehot’s dictum, and what guidance does it provide to the Federal Reserve to calm or mitigate financial panics?

The Housing Bubble of the Early 2000s

In this video, Chairman Bernanke examines the housing bubble, which reached its peak in 2006–07. He analyzes the causes of the housing bubble as well as its role as a trigger for the recent financial crisis.


What were the factors which created the housing bubble that peaked in 2006-07?

How did the housing bubble act as a trigger to the financial crisis?

To what extent did monetary policy at the time contribute to the housing bubble?

The Financial Crisis

In this video, Chairman Bernanke explains how the triggers of the financial crisis, including the decline in the housing market and unwise mortgage practices, and systemic vulnerabilities, such as the activities of Fannie Mae and Freddie Mac, caused a financial panic, subjecting the major financial firms in the United States to enormous financial pressure and in some cases, failure.


What is meant by “securitization”?

How did Fannie Mae and Freddie Mac introduce vulnerabilities into the financial system?

How did the declining housing market contribute to the financial crisis?

In what ways were some mortgage practices considered risky?

How were exotic and subprime mortgages financed?

How did the above factors trigger a classic financial panic?

The Federal Reserve’s Response to the Financial Crisis

In this video, Chairman Bernanke describes the global and Federal Reserve responses to the financial crisis. He focuses on the temporary expansion of the Fed’s “lender-of–last-resort” role to nonbanking financial institutions and its impact. Finally, he examines several key financial institutions, including Lehman Brothers, American International Group, Inc. (AIG), and Bear Stearns; discusses the challenges of dealing with these institutions; and reviews the lessons learned from how the Fed attempted to resolve these institutions’ difficulties.


What was the G-7 countries’ response to the global crisis? What was the effect of the response?

How did the Fed use the discount window to mitigate the financial crisis?

How did the Fed go beyond lending through the discount window to mitigate the crisis?

What made this action different, compared to the Fed’s common lending practices?

How did Lehman Brothers’ bankruptcy cause significant disruptions in the financial markets?

What were the policy lessons learned from the “too big to fail” institutions, such as AIG and Bear Stearns?

How does the recent financial crisis compare to the Great Depression?

Fed's Monetary Policy Response to the Recession

In this video, Chairman Bernanke explains what the Federal Reserve did to contain the financial crisis and how it used monetary policy to help stabilize the economy and promote recovery.


What is conventional monetary policy?

How was conventional monetary policy used to stabilize the economy and promote economic growth?

What are large-scale asset purchases?

How have large-scale asset purchases helped stabilize the economy and promote economic growth?

The Post-Crisis Economic Recovery

In this video, Chairman Bernanke explains how the housing crisis and financial and credit markets have affected the economic recovery, and discusses the future of the economy.


How did the housing crisis affect the economic recovery?

How did the European financial crisis affect the economic recovery?

What lessons can we draw from the financial crisis?

What was the outlook for the economy after the recovery began?

Post-Crisis Regulatory

Changes and Effects of the Crisis on Central Bank Practice

In this video, Chairman Bernanke explains what the Federal Reserve did to contain the financial crisis and how it used monetary policy to help stabilize the economy and promote recovery.


How did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 change financial institution regulation?

How does a systemic approach to financial regulation and supervision help guard against another financial crisis?

Documents

The Federal Reserve