The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents

Aiginger, Karl (2010) The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents. Economics: The Open-Access, Open-Assessment E-Journal, 4 (2010-18). pp. 1-41. ISSN 1864-6042


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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. (author's abstract)

Item Type: Article
Additional Information: This paper was discussed at conferences and workshops at OECD, Forum of Macroeconomic Policy (FMM), WIFO and Mendel University (Brno). The author wishes to thank Gerhard Allgäuer, Fritz Breuss, Felix Butschek, Burghard Feuerstein, Franz Hahn, Jürgen Janger, Helmut Kramer, Karl Pichelmann, Hans Pitlik, Sonja Schneeweiss, Margit Schratzenstaller, Helene Schuberth, Stephan Schulmeister, Hans Seidel, Egon Smeral, Hannes Stattmann, Peter Szopo, Gunther Tichy, Thomas Url and Ewald Walterskirchen for their valuable critique. However, any opinions expressed in the article remain the sole responsibility of the author and do not always reflect the opinions of the critics. I am grateful to Dagmar Guttmann for her research assistance and the WIFO team of research assistances under the lead of Christa Magerl for providing data in the WIFO Long-term Database (Silvia Haas, Sandra Schneeweiß, Eva Sokoll, Andrea Sutrich and Roswitha Übl). We are grateful furthermore for the critique of A.W. Mullineux, Thomas Mayer and two anonymous referees.
Keywords: Financial crisis / Business cycle / Stabilisation policy: Resilience
Classification Codes: JEL E20; E30; E32; E44; E60; G18; G28
Divisions: Departments > Volkswirtschaft > Volkswirtschaftspolitik u Industrieökon.
Version of the Document: Published
Variance from Published Version: None
Depositing User: Elena Simukovic
Date Deposited: 26 Apr 2016 11:40
Last Modified: 26 Apr 2016 13:44
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