Connecting 9/11 to the Financial Crisis

Abstract

This paper summarizes and analyzes research on the economic impact of United States fiscal and monetary policy in the wake of the 9/11-terrorist attacks. Therein, it attempts to connect this tragedy to the financial crisis of the late2000s, which is still not fully understood. The large number of factors identified by numerous experts as the causes for the collapse of the financial system makes the crisis a difficult topic to study. This analysis provides a stepping-stone for any further research in that it helps explain how the factors that led to the crisis were created in the first place. Expert opinions, academic studies, as well as both a Cobb-Douglas production function and one of the newest specifications of the Taylor Rule are looked at throughout this paper. While the latter model shows how monetary policy should have been determined throughout the 2000s, the former helps to analyze the impact of fiscal policy after 9/11 on monetary policy. Based on the research and analysis presented in this paper, we can conclude that the factors that caused the collapse of the financial system were largely impacted by government spending in response to the terrorist attacks and monetary policy between 2001 and 2008. This conclusion implies that the crisis could have been minimized if not prevented altogether.