Over the past week or so, the Federal Reserve has rolled out an extraordinary phalanx of measures. Already these measures exceed the force and scope of the interventions put in place during the global financial crisis. During the weeks ahead, the Fed’s asset purchases, facilities, and other efforts will provide a tsunami of liquidity to the markets. We expect that these efforts will help soothe the extraordinary asset-price volatility that has erupted.
But these measures raise a central question: why have interventions at such massive scale proved necessary?