What Did Central Banks Learn from Financial Crises?

During the global financial crisis (GFC) of 2007–2009 and the currentCovid-19 debacle, central banks acted quickly, boldly, and effectively. The paper argues that they did so thanks to the lessons learned from the past financial crises, which provided them with opportunities to reconsider their previous beliefs. A case in point is the banking crisis in the United States during the Great Depression of the 1930s that taught central banks to act rapidly and decisively in order to prevent an initial liquidity crisis from escalating into a solvency crisis leading to bankruptcies of banks with potentially disastrous consequences for the entire economy. The paper revisits the consequences of the currency crises of the 1990s, which transformed exchange rate regimes across the world: the EMS one of 1992–1993 that accelerated the launch of the euro, and the Asian one of 1997–1998 resulted in the proliferation of floating exchange rates in emerging economies.