Great recession versus great depression: monetary, fiscal and banking policies

Cinzia Alcidi () and Daniel Gros

Journal of Economic Studies, 2011, vol. 38, issue 6, 673-690

Abstract: Purpose - This paper sets out to explore three areas in which the experience of the great depression might be relevant today: monetary policy, fiscal policy, and the systemic stability of banks. Design/methodology/approach - A critical review of the US data for the 1920s and 1930s is presented and stylised facts for monetary, fiscal and banking policies during the noughties are shown and compared with those of the great depression. Findings - The authors confirm the consensus on monetary policy: deflation and massive bank failures must be avoided. With regard to fiscal policy it is impossible to confirm a widespread opinion according to which fiscal policy did not work because it was not tried. The paper finds that fiscal policy went to the limit of what was possible under the conditions as they existed then. Policy reaction after 1932 was no less bold than that of today if one accounts for sustainability issues. Lastly, the investigation of the US banking system shows a surprising resilience of commercial banks that remained profitable, at least on average, even during the worst years. Originality/value - First, the paper presents a systematic comparison between the great depression and the great recession, highlighting similarities and differences. Second, it suggests a relevant policy implication. Findings on commercial bank sector resilience suggest that at present national authorities have little choice but to make up for the losses on “legacy” assets and wait for banks to earn back their capital. However, to prevent future crises, at least a partial separation of commercial and investment banking seems justified.

Keywords: Great depression; Great recession; Recession; Monetary policy; Fiscal policy; Commercial banks (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:v:38:y:2011:i:6:p:673-690

DOI: 10.1108/01443581111177385

Access Statistics for this article

Journal of Economic Studies is currently edited by Prof Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().