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A New Keynesian Perspective on the Great Recession

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  • Peter N. Ireland

    ()
    (Boston College)

Abstract

With an estimated New Keynesian model, this paper compares the "great recession" of 2007-09 to its two immediate predecessors in 1990-91 and 2001. The model attributes all three downturns to a similar mix of aggregate demand and supply disturbances. The most recent series of adverse shocks lasted longer and became more severe, however, prolonging and deepening the great recession. In addition, the zero lower bound on the nominal interest rate prevented monetary policy from stabilizing the US economy as it had previously; counterfactual simulations suggest that without this constraint, output would have recovered sooner and more quickly in 2009.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 735.

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Date of creation: 01 Apr 2010
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Handle: RePEc:boc:bocoec:735

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Keywords: recession; New Keynesian; zero lower bound;

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Cited by:
  1. Wieland, Volker & Cwik, Tobias & Müller, Gernot J. & Schmidt, Sebastian & Wolters, Maik, 2012. "A new comparative approach to macroeconomic modeling and policy analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 523-541.
  2. Karnizova Lilia, 2012. "News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 12(1), pages 1-50, June.
  3. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Why Are Target Interest Rate Changes So Persistent?," NBER Working Papers 16707, National Bureau of Economic Research, Inc.
  4. Michael T. Belongia & Peter N. Ireland, 2014. "Interest Rates and Money in the Measurement of Monetary Policy," NBER Working Papers 20134, National Bureau of Economic Research, Inc.
  5. Alexandru Ciungu, 2012. "Inflation targeting, the zero lower bound and post-crisis monetary policy," Post-Print dumas-00801712, HAL.
  6. Mewael F. Tesfaselassie, 2014. "Credible Disinflation and Delayed Slumps under Real Wage Rigidity," Kiel Working Papers 1923, Kiel Institute for the World Economy.
  7. Leiva-Leon, Danilo, 2013. "Real vs. Nominal Cycles: A Multistate Markov-Switching Bi-Factor Approach," MPRA Paper 54456, University Library of Munich, Germany.
  8. Cover, James P. & Mallick, Sushanta K., 2012. "Identifying sources of macroeconomic and exchange rate fluctuations in the UK," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(6), pages 1627-1648.
  9. Gust, Christopher & López-Salido, J David & Smith, Matthew E, 2012. "The Empirical Implications of the Interest-Rate Lower Bound," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9214, C.E.P.R. Discussion Papers.
  10. Steve Keen, 2011. "Debunking Macroeconomics," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(3), pages 147-168, December.
  11. Richard McManus, 2013. ""We're all in this together"? A DSGE interpretation," Discussion Papers, Department of Economics, University of York 13/08, Department of Economics, University of York.
  12. Schmidt, Sebastian & Wieland, Volker, 2013. "The New Keynesian Approach to Dynamic General Equilibrium Modeling: Models, Methods and Macroeconomic Policy Evaluation," Handbook of Computable General Equilibrium Modeling, Elsevier.

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