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Barry Eichengreen | The Legacy of the Great Moderation: Currency, Populism, and Credit

Hidden Forces

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The Fed and the Phillips Curve

The Fed was created in 1914 because interest rates were extremely volatile in the United States. The demand for credit would shoot up in the fall during the harvest season when farmers needed to pay field workers and crops needed to be moved. That sharp spike in interest rates in the fall and lesser spike in the spring during the planting season caused all kinds of financial dislocations, problems for banks,. Problems for people who had to roll over a maturing loan, problems for homeowners with a mortgage.

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