Government’s fiscal policy (borrowings) and monetary policy operations (OMO)

Abstract

The housing bubble burst in the US in mid 2007 soon spread to the financial markets around the world and then leaked to the real economy to take shape of a full blown global meltdown. Around the world stock markets fell and large financial institutions collapsed. The financial crisis of 2007–2009 has arguably been the worst financial crisis since the Great Depression of the 1930s. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, and a significant decline in economic activity. Economies worldwide slowed significantly in late 2008 and early 2009 as credit tightened and international trade activity declined. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion, and institutional bailouts. What started off as turmoil in the financial sector of the advanced economies, snowballed into the deepest and most widespread financial and economic crisis of the last 60 years.