key macroeconomic factor behind the crisis was the current account imbalances, especially between the united states and china. the abundant supply of external capital pushed us longterm interest rates down. in the environment of falling yields, pressure was put on developing new high - yield investment instruments, including subprime loans, which also enjoyed political momentum in the united states. 1 / 7 bis central bankers'speeches another macroeconomic factor underlying the crisis was the time of the so called “ great moderation ”. this was largely ascribed to modern monetary policy. ever since the stock market crash of 1987, we had also become used to the central banks stepping in with liquidity injections, where necessary, to restore stability on the markets. although positive as such, these developments came with the downside of a false sense of security and a lower awareness of risk. second explanation : non - existent macroprudential policies and deficient monetary policies the second explanation for the financial crisis relates to the non - existent macroprudential policies but, in hindsight, also to deficient monetary policies in the years leading up to the crisis. us monetary policy had been relaxed in response to the september 11 attacks and other millennium shocks. the accommodative stance of monetary policy was sustained by concerns over deflationary trends. housing markets showed signs of overheating, but when the series of interest rate hikes began, this did not, in retrospect, seem to be effective enough. should more determined measures of monetary policy have been adopted to burst the us housing market bubble? according to jan tinbergen ’ s famous principle, a certain number of policy targets requires an equal number of policy instruments. the challenge was that monetary policy had one tool to offer, but there were two objectives to meet, i. e. price stability and financial stability. there were no macroprudential tools in place for ensuring financial stability. banking regulation tools were, in principle, available, but decision - making was impaired by the fragmentation of the us regulatory framework. ben bernanke, greenspan ’ s successor, also addresses this issue in his memoirs. as finnish parliamentarians met with bernanke during his last week in office in washington in january 2014, we asked him what was surprising or new about this crisis. his answer was that they knew that speedy interest rate cuts had to be made and a strong economic stimulus introduced. but they had not anticipated the complexity of international financial institutions. third explanation

erkki liikanen : towards more balanced growth - past experiences and current challenges speech by mr erkki liikanen, governor of the bank of finland, at a high - level seminar between the executives ’ meeting of east asia - pacific central banks and the eurosystem, frankfurt, 8 - 9 november 2005. * * * - looking at the world economy, one is struck by the pronounced differences in gdp growth rates of different countries and country groups as well as by the expansion of current account deficits and surpluses. some of the rapidly growing economies, notably the usa, have had to face increasing imbalances. this has intensified concerns over worsening problems and how to manage them. - as always, such unbalanced developments arise from a host of problems that are difficult to spell out. this is clearly reflected in the international debate concerning these problems. one must be wary of oversimplifying the problems and their solutions. careful analysis of the problems will clearly help us decide on an appropriate policy strategy. - current account problems should be viewed from several different angles. the logic behind macroeconomic variables presents three fundamental perspectives from which to analyse a current account deficit : 1. foreign trade and the services and income accounts of the balance of payments 2. the balance of savings and investment in the economy 3. developments in the economy's external assets and liabilities - analysis is usually dominated by the foreign trade aspect, so that policy debate tends to focus on trade barriers and exchange rates. this is also typical of recent discussions of the us current account deficit and the surpluses of many other countries, particularly in asia. - it is important to examine the current account also from the perspective of savings and investment. current imbalances in the global economy are largely due to the low level of savings and high level of consumption in some western economies, particularly the usa, and the abundant savings and modest private consumption particularly in several asian economies. recently, savings rates have also inreased sharply in oil - producing countries, with the boost in income from high oil prices. - one should also emphasise the factors related to indebtedness and financial investment. by definition, the increase in an economy's indebtedness is the counterpart of its current account deficit. often mentioned as determining factors in international capital flows are the depth of us financial markets and the us dollar's position as major reserve currency. these factors draw investment funds into the usa and so provide the financing for us