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A New Keynesian Perspective on the Great Recession

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  • Peter N. Ireland

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16420.

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Date of creation: Sep 2010
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Publication status: published as Peter N. Ireland, 2011. "A New Keynesian Perspective on the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 31-54, 02.
Handle: RePEc:nbr:nberwo:16420

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Cited by:
  1. Wieland, Volker & Cwik, Tobias & Müller, Gernot J. & Schmidt, Sebastian & Wolters, Maik Hendrik, 2012. "A new comparative approach to macroeconomic modeling and policy analysis," IMFS Working Paper Series 49, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  2. Lilia Karnizova, 2012. "News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle," Working Papers 1201E, University of Ottawa, Department of Economics.
  3. Gust, Christopher & López-Salido, J David & Smith, Matthew E, 2012. "The Empirical Implications of the Interest-Rate Lower Bound," CEPR Discussion Papers 9214, C.E.P.R. Discussion Papers.
  4. Alexandru Ciungu, 2012. "Inflation targeting, the zero lower bound and post-crisis monetary policy," Post-Print dumas-00801712, HAL.
  5. 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, vol. 31(6), pages 1627-1648.
  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. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Why Are Target Interest Rate Changes So Persistent?," NBER Working Papers 16707, National Bureau of Economic Research, Inc.
  8. 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.
  9. Richard McManus, 2013. ""We're all in this together"? A DSGE interpretation," Discussion Papers 13/08, Department of Economics, University of York.
  10. Steve Keen, 2011. "Debunking Macroeconomics," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(3), pages 147-168, December.
  11. Leiva-Leon, Danilo, 2013. "Real vs. Nominal Cycles: A Multistate Markov-Switching Bi-Factor Approach," MPRA Paper 54456, University Library of Munich, Germany.
  12. 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.

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