From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons

47 Pages Posted: 5 Apr 2010

See all articles by Miguel Almunia

Miguel Almunia

University of California, Berkeley - Department of Economics

Agustín S. Bénétrix

Trinity College (Dublin)

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Kevin H. O’Rourke

affiliation not provided to SSRN

Gisela Rua

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Abstract

The Great Depression of the 1930s and the Great Credit Crisis of the 2000s had similar causes but elicited strikingly different policy responses. While it remains too early to assess the effectiveness of current policy, it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies. We employ vector autoregressions, instrumental variables, and qualitative evidence for 27 countries in the period 1925–39. The results suggest that monetary and fiscal stimulus was effective -- that where it did not make a difference it was not tried. They shed light on the debate over fiscal multipliers in episodes of financial crisis. They are consistent with multipliers at the higher end of those estimated in the recent literature, and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound.

Suggested Citation

Almunia, Miguel and Bénétrix, Agustín and Eichengreen, Barry and O’Rourke, Kevin H. and Rua, Gisela, From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons. Economic Policy, Vol. 25, Issue 62, pp. 219-265, April 2010. Available at SSRN: https://ssrn.com/abstract=1583156 or http://dx.doi.org/10.1111/j.1468-0327.2010.00242.x

Miguel Almunia (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Agustín Bénétrix

Trinity College (Dublin) ( email )

2-3 College Green
Dublin, Leinster
Ireland

Barry Eichengreen

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Kevin H. O’Rourke

affiliation not provided to SSRN

No Address Available

Gisela Rua

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
717
PlumX Metrics