Analysis and interpretation of the U.S. monetary policy during the bubble and the subprime crisis

Marco Govetto & Thomas Walcher

Student thesis: Master thesis


The goal of our thesis is to analyze the monetary policy that the Federal Reserve adopted in order to respond to what is commonly known as the dot-com bubble. We want to focus on the actions taken by the FED during the crisis and in the years that followed in order to understand the rationale behind the decisions that the American central bank took. We want to look at these decisions under critical lenses in order to have a motivated say in judging the actions that the FED is currently implementing to respond to the subprime crisis. The ultimate goal of our work is therefore to comment on the monetary policy that the FED is now implementing and to give some predictions for how the economy will respond to these monetary decisions. What interests us is the possibility to use our thesis as an opportunity to go into much detail about what have been the operations of the FED and what these have caused in the real economy. We believe that there is ground for investigation with respect to the rationale behind the monetary policy adopted by the FED during the years that followed the 2001 crash of the markets and more interestingly we believe that this investigation can be used as a starting point to evaluate the current actions of chairman Bernanke and to try to predict a set of possible outcomes given the direction that the FED has undertaken. There is a lot of discussion going on about these topics and the main reason why this is the case is that monetary policy has crucial effects and influences not only the degree of liquidity in the system but also the general equilibrium of the economy. Moreover the link between the fed fund rate (which is the main instrument of monetary action) and other macroeconomic variables has been challenged by the recent turmoil of the economy and some of the principles that were given for granted before the bust of the housing bubble in the summer of 2007, are now questioned again. This opens the horizon to a set of discussions that we will not address in our work but which will be at the very earth of the future stability of the global economy.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2009
Number of pages104