Question

During and after the global financial crisis, the Fed reduced the fed funds rate to nearly zero. At the same time, the stock market fell dramatically and housing market values declined sharply. Comment on the effectiveness of monetary policy during this period with regard to the wealth channel

Short answer

During the global financial crisis, the effect of interest rates over capital was ineffective.

Step-by-step solution

Concept Introduction.

The paths whereby the Federal Reserve System's monetary policies affect macroeconomic action are known as monetary policy channels. The central bank's monetary policy, which includes the rate of return and money supply control, is known as monetary policy. The financial system employs monetary policies goals such as expansion, consumer, and fluidity.

Explanation of Solution.

This type of financial leadership, according to revenues channels, leads to better equity and land prices, enhancing householders' assets through the housing and capital markets. Even borrowing costs remained lower during this time, resulting in a steep drop in stock and home values, which reduced collective demand and consumption even more. This demonstrates that monetary policy's wealth-based effects were ineffective during the global economic crisis.