Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE credits
The financial crisis of 2007-2010 wiped out liquidity from credit markets, following the
interbank credit crunch as the investment bank Lehman Brothers collapsed. The situation
demanded a new monetary policy approach to boost liquidity in the markets vital for a
broader economic recovery. The Federal Reserve needed to expand its toolkit and introduce a
diversified set of tools to be able to provide that liquidity. The new method was branded
“credit easing”, as its main objective was to ease credit conditions in key credit markets. This
study aimed to define and apply a model of indicators for measurement of “credit easing’s”
effectiveness in easing credit conditions for businesses. Moreover, this study also aimed to
higher certainty in the distinction between “credit easing” and monetary policies used in the
past. We conclude that, especially thanks to The Federal Reserve’s direct credit allocation in
the markets for commercial paper, “credit easing” was successful in preventing a much worse
scenario that could have occurred. Regarding the differences between this new approach and
earlier used methods, we conclude that “credit easing” mechanically only differs in the tool of
central bank’s direct borrowing to prioritized borrowers. However, the main difference is the
idea of adjusting the entire set of tools in use in order to reach the objective of easing credit
conditions in specially chosen markets. This specification in The Federal Reserve’s approach
is the reason why “credit easing” has received the classification of an unconventional policy.
2012. , p. 42