The Great Depression and the Great Recession: A View from Financial Markets

53 Pages Posted: 30 Mar 2015 Last revised: 15 Jul 2023

See all articles by Francesco Bianchi

Francesco Bianchi

Johns Hopkins University; NBER; CEPR

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Date Written: March 2015

Abstract

Similarities between the Great Depression and the Great Recession are documented with respect to the behavior of financial markets. A Great Depression regime is identified by using a Markov-switching VAR. The probability of this regime has remained close to zero for many decades, but spiked for a short period during the most recent financial crisis, the Great Recession. The Great Depression regime implies a collapse of the stock market, with small-growth stocks outperforming small-value stocks. A model with financial frictions and uncertainty about policy makers’ intervention suggests that policy intervention during the Great Recession might have avoided a second Great Depression. A multi-country analysis shows that the Great Depression and Great Recession were not like any other financial crises.

Suggested Citation

Bianchi, Francesco, The Great Depression and the Great Recession: A View from Financial Markets (March 2015). NBER Working Paper No. w21056, Available at SSRN: https://ssrn.com/abstract=2586909

Francesco Bianchi (Contact Author)

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NBER ( email )

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CEPR ( email )

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