Causes of the Financial Crisis and Great Recession: The Role of U.S. Monetary Policy

This paper focuses on the role U.S. monetary policy may have played in creating the U.S. housing boom/bust cycle that caused the financial crisis of 2007-2008 and consequently the “Great Recession”. Both capital inflows and looser U.S. mortgage lending terms and standards (to the extent that these are independent of monetary policy) suggest an alternative source of funds to fuel the initial increase in housing demand and also to sustain the boom. We find the argument that U.S. monetary policy solely caused the housing price boom/bust cycle less than completely convincing.