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Changes in Central Bank Procedures during the Subprime Crisis and Their Repercussions on Monetary Theory
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The subprime financial crisis has forced several North American and European central banks to
take extraordinary measures and to modify some of their operational procedures. These changes
have made even clearer the deficiencies and lack of realism in mainstream monetary theory, as
can be found in both undergraduate textbooks and most macroeconomic models. They have also
forced monetary authorities to reject publicly some of the assumptions and key features of
mainstream monetary theory, fearing that, on that mistaken basis, actors in the financial markets
would misrepresent and misjudge the consequences of the actions taken by the monetary
authorities. These changes in operational procedures also have some implications for heterodox
monetary theory; in particular, for post-Keynesian theory.