EconStor >
Institut für Weltwirtschaft (IfW), Kiel >
Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/32773
  
Title:The Great Recession vs. the Great Depression: Stylized facts on siblings that were given different foster parents PDF Logo
Authors:Aiginger, Karl
Issue Date:2010
Citation:[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 4 [Issue:] 2010-18 [Pages:] 1-41 [DOI/URN:] doi:10.5018/economics-ejournal.ja.2010-18
Abstract:This paper compares the depth of the recent crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the recent crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the recent crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and prices, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated. During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the recent crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit the depth of the recent crisis.
Subjects:Financial crisis
Business cycle
Stabilisation policy: Resilience
JEL:E20
E30
E32
E44
E60
G18
G28
Persistent Identifier of the first edition:doi:10.5018/economics-ejournal.ja.2010-18
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Article
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles

Files in This Item:
File Description SizeFormat
626675979.pdf915.93 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/32773

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.