U.S. interest rate policy in the 2007–2009 crisis

Abstract

The 2007–2008 U.S. financial crisis brought about a peculiar situation in the interest rate policy. From December 15, 2008, the prime rate of the American central bank (FED) went into the 0–0.25 percent interest rate bracket. By this, the space to maneuver provided by the reduction of interest rates practically ceased to exist in FED's policy. This is not a unique case, as Japan applied the 0.25 percent interest rate for more than a year from the last quarter of 2001. This means that it is worth examining the parallelisms. On the one hand, we should explore how the interest rate policies could get to the point of losing their space to maneuver, on the other hand, we should find out whether the practically zero interest rate level is suitable for the handling of the financial and economic crisis