“Causes of the Financial Crisis and the Slow Recovery”

In the third chapter of “Across the Great Divide: New Perspectives on the Financial Crisis,” John Taylor argues that monetary policy, regulatory policy, and an ad hoc bailout policy caused the financial crisis:

  • Monetary policy was too loose before the crisis.
  • “[R]egulators permitted violations from existing safety and soundness rules.”
  • An “on-again, off-again bailout policy … created more instability.”

The policy responses during the crisis saw more—counter productive—temporary and discretionary measures. Taylor argues that the Reinhart-Rogoff “weak recovery is normal” and the Summers “secular stagnation” views are inconsistent with the data.