Fed Monetarism Caused Great Recession?

Here are some important highlights from economic research done by Ambrogio Cesa-Bianchi and Alessandro Rebucci concerning the Federal Reserve and the lax-regulatory causes of the Great Recession:

…evidence shows that, after the Fed started to tighten its monetary-policy stance and the prime segment of the mortgage market promptly turned around, the subprime segment of the mortgage market continued to boom, with increased perceived risk of loans portfolios and declining lending standards. Despite this evidence, the first regulatory action to rein in those financial excesses was undertaken only in late 2006, after almost two years of steady increases in the federal funds rate.

…the SEC proposed in 2004 a system of voluntary regulation under the Consolidated Supervised Entities program, allowing investment banks to hold less capital in reserve and increase leverage that might have contributed to fuelling the demand for mortgage-backed securities…. When regulators finally decided to act, it was too late…. …it should be noted the new underwriting criteria did not apply to subprime loans….

In the context of our model and according to this evidence, regulatory rather than monetary-policy failures are largely to blame for the occurrence and the severity of the Great Recession. Is the Federal Reserve breeding the next financial crisis? | vox.

None of that is to say that the Federal Reserve didn't hold interest rates too low for too long and that holding rate so low for so long didn't contribute to the environment (heating) that lead to the Great Recession.

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