US & Spain: how the ECB and
FED responded to the financial
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
• 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
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
• the government implemented a $800 billion stimulus plan
Reactions by the ECB
• 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
• however, the unemployment rate still remains at a very high