And again you can see In this case, all of them fell.
The whole period where we would normally see growth
every year, all of them fell over this entire period.
But you can see the United States fell only 6.4%.
Look at the following the Euro area, 9.3%.
And the UK, 11.6%.
This is just dramatic.
And Japan's even worse.
12.1%, okay.
So these are falls that are very, very severe
when compared with any other period in recent economic history.
The third line is the CPI.
And we didn't talk very much about inflation in this course,
but the CPI is what we usually use to measure inflation.
And so you can see how much inflation went up again
over the entire period this entire four years, four plus years.
So the CPI in the US rose by 8.5.
The, in the Eurozone exactly the same amount.
Okay.
So we divide that out a couple of percent, a couple of percent a year.
The UK rose by 15.5 now that's a number we want to explain.
Okay, keeping in mind some of our earlier discussions and Japan fell.
Japan experienced deflation, deflation over this period which means
your general price level is falling instead of rising.
Deflation of 1.1%, okay?
Then we have one other result there.
If you skip down a little bit, you can see equity prices.
And that means what happened to your stock market in this period.
You can see it would be a good thing not to own stocks in any
of these places in this period because in
the US, overall the stock market fell 6.3%.
The Euro area fell by 43.7 %.
This is mainly the Euro zone crisis, which caused a lot of.
Shareholders to dump their European shares and leave, go somewhere else.
That actually helped the US figure, right.
So 43.7% decline in the stock market.
Then you can see the UK with a 10.7%
decline, and Japan with a 42% decline, all right.
So really severe You can imagine how this hit wealth.
Remember our discussion of aggregate demand and the wealth effect?
All right, when people's wealth goes down, they're going to consume less.
So, these very large declines will make the crisis longer.
Okay, so those are the performance, that's the performance of the economy.
Let's look now and see what authorities did to try to combat the crisis.
All right?
We're going to start with these dark blue rectangles.
There's two of them there, which is basically monetary policy and
we've talked about all these things so just follow me through here.
The first one is the policy rate.
Now that's when we talked about money market
sets that rate that the central bank is targeting.
In the free financial system, okay?
So, they don't control it directly, but they use the movement of money,
the increase or decrease of the money supply to move that interest rate.
So here you can see that in the United
States, monetary authorities cut the interest rate by 4.1.
Percentage points alright its pretty dramatic.
You can see in the Euro area they didn't cut interest rates as much, its 3% points.
In the UK they cut them even more than in the US 5% points so we can see he
US and the UK leaning heavily on monetary policy, expansive monetary policy.
To try to pull out of the crisis.
In Japan, you can see they only cut interest rates by 0.4 percentage points.
But the fact is, that Japan already came out of a very long crisis.
All right?
And so there was no room to cut rates.
They were already very, very low.
So That explains Japan.
If they could have cut them, they would have, right?
The next line is a 10-year yield.
This also takes us back to an earlier discussion.
You remember in that secondary bond market where the bonds live?
Okay?
That's what happened to their interest rates in that market.
Again, it's not controlled by the Central Bank.
They move up and down as The different bold holders buy or
sell them okay and as the price moves the implicit interest rate moves.
So you can see that 10 year interest rate on bonds
h, fell by 2.2% point in the U.S., 2.5 in the
Euro zone that has to do with the crisis, again people
dumping European bonds because they were afraid they wouldn't get paid.
In the UK it fell by 2.4 percentage points and in
Japan, again, they were so low there wasn't far to go.
0.6 percentage points.
Now the third blue rectangle is also monetary
policy and it's something we haven't explained yet.
So this is sort of looking ahead to our next session.
This third one which is, which appears as a
CB bal sheet, this is Central Bank balance sheet and
this reflects something that we're going to talk about
in the next session which is called quantitative easing, alright?
Remember when we talked about monetary policy and we said sometimes
the transmission mechanism breaks down, authorities Create money and maybe it even
causes the interest rate to fall, but it doesn't get out
to GDP because people don't want to borrow, banks don't want to lend, okay?
Transmission mechanisms breaks down.
We'll talk about this in the next class but what
happens, and what did happen in, in three of these
Areas was the central banks said, okay, I can't get
over here to GDP because my transmission mechanism is broken down.
So what I'm going to do is I'm just going to
create a lot of money and keep buying from banks.
Lots and lots of bonds so that they feel comfortable
and some day, they start lending, and we get to GDP.
Again, we'll define that in the next session.
But this reflects to what extent central banks were doing quantitative using.
Printing extra money.
That's not exactly what it is, but anyway.
Increasing the money supply that reaches banks so that
maybe they will lend and the economy will pick up.
Look at these numbers.
They're quite dramatic in some cases.
In the United States The balance sheet of the Fed.
And we'll define this later, but this just
refers to how much the money supply increased.
The money supply that reached banks increased 222%, 222%
in a period of little more than 4 years.
So, this is a massive expansion of Money in the United States.
In the Euro-zone they say they don't believe in quantitative easing.
But they expanded the balance sheet of the
Central Bank by almost 100% in this period.
So something was going on.
And the UK did this even more than the United States.
233.6% increase in the balance sheet of Central Bank.
So you can see Quantitative easing, as we will define later, is being carried
out by, mainly by the UK, the US, little bit by the Euro area.
And this is sort of a supplement to monetary policy.
Trying hard on the monetary front to expand the economy.
You can see Japan didn't do this.
They let the money supply grow at normal rates 25% over that period.
There's a reason for that which is that Japan had already
done quantitative.easing but anyways we'll talk about that in the next session.
