How the Fed Helped Cause the Financial Crisis

John Taylor of Stanford has been a leading critic of the Fed’s role in creating the financial crisis and its actions afterward. In this blog post he summarizes the arguments against the Fed, including links to important research from others that pin a lot of responsibility on the Fed’s loose money before 2007.

Of course Ben Bernanke is not the only central banker who disagrees with this research. In an  article “Alan Greenspan: What Went Wrong” in the Wall Street Journal Alexandra Wolfe reported that Greenspan told her that he disagreed with my 2007 paper, though she also reported that I stood by the paper and said that “Other economists have corroborated the findings” and “the results are quite robust.”

Several years ago in comments on a paper I gave at the Bank for International Settlements, Ken Rogoff said (pp. 29-31) that “John Taylor’s critiques of post-2000 ultra-loose monetary policies are well known and have been widely discussed. His ideas are a subject of ongoing research, with no firm conclusion as yet.”  When you add what has been done since Ken spoke to what was done before–amounting to about a decade of research, I’d say there’s a very firm conclusion now.