Transcript spain
US & Spain: how the ECB and FED responded to the financial crisis Maggie Duthaler Juliet Zawedde Before the Crisis: USA • long period of growth before the recession • real GDP started to fall • consumer spending began to decrease • changes occurred in the housing market Before the Crisis: Spain • long period of growth before the recession • encountered situations the economy was unprepared for o ie. a mounting debt and hedge funds • banks needed to discriminate between good and bad debtors During the Crisis: USA • home prices fell and homeowners began to default on their loans • growth of the job market slowed from 1.6% to .8%- in 1 yr. a total of 32,143 jobs were lost • consumption and investment components of GDP decreased During the Crisis: Spain • systemic shortage of liquidity • Increased credit risk • Between 2008 and 2009, GDP declined by about 3.6% • Decrease in trade demand • contraction in investment and rapid unemployment rate • Public debt crossed the threshold of 50% of GDP Reactions by the FRB • FEDs main response was also open market operations o QE and QE2 plan Bought $600 billion treasuries • FED lowered the interest rate to 0% with hopes of increased investment • the government implemented a $800 billion stimulus plan Reactions by the ECB SPAIN: • ECB adjusted the distribution of liquidity over the reserve maintenance period, providing liquidity earlier • used open market operations to steer their interest rate • adopted a fixed rate tender procedure with full allotment for all of its weekly main refinancing operations and its longer-term refinancing operations with maturities of up to six months • increased the number and frequency of longer-term refinancing operations • increased cooperation between international central banks Improvements as of 2011: USA • GDP has increased consistently, averaging $14,575 billion • consumer spending has increased by 2.8%, the highest rate since before the recession • unemployment has decreased with the creation of jobs from the stimulus package, from 9.4% to 9.0% in the last quarter of 2010 • however, larger political problems have made resolving the large public debt difficult Improvements as of 2011: Spain • in the beginning of 2010, GDP began to increase gradually, after 3 quarters of decreasing • the spanish government implemented a plan to decrease its debt • however, the unemployment rate still remains at a very high level