The aggressive intervention - along with massive government spending - quickly ended the downturn and triggered a powerful economic recovery.īut the quick comeback also came at a cost: Inflation began rising rapidly last year and now is close to 40-year highs, forcing the Fed and other central banks to reverse course and raise rates to cool the economy. economy in early 2020, the Fed, under Chair Jerome Powell, quickly cut short-term interest rates back to zero and pumped money into the financial system. The Fed also pushed long-term interest rates to historic lows, which led to fierce criticism of Bernanke, particularly from some 2012 Republican presidential candidates who said the Fed was hurting the value of the dollar and running the risk of igniting inflation later.Īnd Bernanke's unprecedented activism at the Fed established a precedent for the central bank to respond with speed and force to economic shocks. Collectively, those steps calmed investors and fortified big banks - and were credited with avoiding another depression. He slashed short-term interest rates to zero, directed the Fed’s purchases of Treasury and mortgage investments and set up unprecedented lending programs. Treasury Department to prop up major banks and ease a shortage of credit, the lifeblood of the economy. The trio's research took on real-world significance when investors sent the financial system into a panic during fall 2008, prompting the longest and most painful recession since the 1930s.īernanke, then head of the Fed, teamed up with the U.S. When it comes to the global economic turmoil created by the COVID-19 pandemic and Russia's war in Ukraine, the financial system is “much, much less vulnerable" to crises because of memories of the 2000s collapse and improved regulation, Diamond said in a call with the Nobel panel. “Probably the most gratifying thing for us is that policymakers actually seem to understand it, and the insights that we had, which are pretty simple, could be used in the actual financial crisis," Diamond told The Associated Press in Chicago. Louis, showed how government guarantees on deposits can prevent a spiraling of financial crises. He was Fed chair from early 2006 to early 2014 and is now with the Brookings Institution in Washington.īefore Bernanke, economists saw bank failures as a consequence, not a cause, of economic downturns.ĭiamond, 68, based at the University of Chicago, and Dybvig, 67, based at Washington University in St. And the laureates this year provide that.”īernanke, 68, examined the Great Depression of the 1930s when he was a professor at Stanford University, showing the danger of bank runs - when panicked people withdraw their savings - and how bank collapses led to widespread economic devastation. “We need to have an understanding of the mechanism behind those and what to do about it. “Financial crises and depressions are kind of the worst thing that can happen to the economy," said John Hassler of the Committee for the Prize in Economic Sciences. Their findings in the early 1980s laid the foundations for regulating financial markets, the panel said. Diamond and Philip Dybvig on Monday for research that shows “why avoiding bank collapses is vital.” The Nobel panel at the Royal Swedish Academy of Sciences recognized Bernanke, Douglas W. STOCKHOLM (AP) - Former Federal Reserve Chair Ben Bernanke and two other U.S.-based economists won the Nobel Prize in economics for research into bank failures - work that built on lessons learned in the Great Depression and helped shape America’s aggressive response to the 2007-2008 financial crisis.
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