ABSTRACT
The collapse of Lehman Brothers in September 2008, initiating the biggest bankruptcy in US history, introduced massive uncertainty into the principles and future of monetary policy. The conduct of this policy had been applauded widely until then for its contribution to what was called ‘the Great Moderation’, that is, the period of price stability and steady expansion that lasted from the mid-1980s to 2007. 1 The ensuing crisis challenged central bank officials to abandon the inherited wisdom of New Keynesian policy models dominating the pre-crisis period and to play instead a more interventionist, overtly political role in financial markets and the conduct of fiscal policy.
