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

Miguel Almunia (), Agustín Bénétrix (), Barry Eichengreen (), Kevin O'Rourke () and Gisela Rua ()

No 7564, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Great Depression of the 1930s and the Great Credit Crisis of the 2000s had similar causes but elicited strikingly different policy responses. It may still be too early to assess the effectiveness of current policy responses, but it is possible to analyze monetary and fiscal policies in the 1930s as a 'natural experiment' or 'counterfactual' capable of shedding light on the impact of recent policies. We employ vector autoregressions, instrumental variables, and qualitative evidence for a panel of 27 countries in the period 1925-1939. The results suggest that monetary and fiscal stimulus was effective - that where it did not make a difference it was not tried. The results also 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, consistent with the idea that the impact of fiscal stimulus will be greater when banking system are dysfunctional and monetary policy is constrained by the zero bound.

Keywords: credit crisis; Great Depression; multipliers (search for similar items in EconPapers)
JEL-codes: E63 N10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his and nep-mac
Date: 2009-11
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Journal Article: From Great Depression to Great Credit Crisis: similarities, differences and lessons (2010) Downloads
Working Paper: From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons (2009) Downloads
Working Paper: From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons (2009) Downloads
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