Journal of the History of Economic Thought Preprints - READING KEYNES AT THE ZERO LOWER BOUND: THE GREAT DEPRESSION, THE LIQUIDITY TRAP, AND UNCONVENTIONAL POLICY

Richard Sutch

No vzykd, SocArXiv from Center for Open Science

Abstract: John Maynard Keynes’s analysis of the Great Depression has strong parallels to recent theorizing about the post-2008 Great Recession. There are also remarkable similarities between the two historical episodes: the collapse of demand for new fixed investment, the role of the zero-lower-bound liquidity trap in hampering conventional monetary policy, the multi-year period of near-zero short-term rates, and the protracted period of subnormal prosperity. A major difference between then and now that monetary authorities in the recent situation actively pursued an unconventional policy with massive purchases of long-term securities. Keynes couldn’t convince authorities of his era to pursue such a plan, but it was precisely the monetary policy he advocated for a depressed economy stuck at the zero lower bound of nominal interest rates.

Date: 2018-03-13
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mon and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:vzykd

DOI: 10.31219/osf.io/vzykd

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