Central banks and financial crises: Lessons from recent Latin American history

Central banks have played an instrumental role in the current financial crisis in mature markets. With the aim of bringing money markets back to normal functioning and stemming financial turmoil, central banks have extended sizable financial assistance to failing banks and other intermediaries – although at the cost of increasing the size of their balance sheets and creating moral hazard and other microeconomic distortions. Today, systemic liquidity has been restored but credit conditions have not been normalised and, hence, economic activity has declined and inflation has started to fall.

One Response to "Central banks and financial crises: Lessons from recent Latin American history"

  1. devils advocate   January 6, 2009 at 3:28 pm

    am I mistaken-?the USA is buying oil for its Reserve to take supply off the market and raise the price of oilthe prices of groceries are rising not fallingfor example, the price of fruit is higher: apples are $2-3 lb.the USA Govt. is printing dollars, planning to hire millions and increase 80%+ of thewage-earners’ salaries by removing the payroll tax, plus tax rebates plus money tobusiness for up to 5 years of past lossesa cynic could say that Pres-elect Obama is about to pay off his voter constituencybased on the economists’ belief that:more and more money … will stimulate spending …sooner or later, money flying through the air will work and THEN WE WILL GET INFLATIONit’s a spiral with a high-risk end game