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The purpose of this paper is to reassess empirical findings about the causes of the 2008 financial crisis and the severity of the Great Recession in the light of research and events during the past 10 years. My original assessment, made a decade ago, was that empirical research “strongly suggests that specific government actions and interventions should be first on the list of answers” to the question “what caused the financial crisis?”2 A review of empirical studies conducted over the past decade with newer data, longer time periods, more countries, and different statistical or economic modelling techniques confirms that original assessment to a remarkable degree.
This paper focuses on monetary policy. Other government actions possibly causing the crisis include deviations from existing prudential regulatory rules and interventions by government sponsored enterprises, Fannie Mae and Freddie Mac.3 These actions are considered in other parts of this workshop series.
