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How the Great Moderation Became a (Contained) Depression and What to Do About It

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Author Info

  • Barry Cynamon

    ()
    (Weidenbaum Center on the Economy, Government, and Public Policy, Washington University in St. Louis)

  • Steven Fazzari

    ()
    (Department of Economics, Washington University in St. Louis)

  • Mark Setterfield

    ()
    (Department of Economics, Trinity College)

Abstract

The Great Recession was deep and the subsequent recovery has been slower than most economists predicted. This article summarizes the message of a recent book that presents perspectives from a group of Keynesian economists who warned prior to 2007 of dangerous trends that could lead to these unfavorable outcomes. We discuss how the debt-fueled consumer boom leading up to the Great Recession was unsustainable and how rising inequality has compromised demand generation during the feeble recovery. We conclude the article by considering how public policy must respond in coming years.

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File URL: http://internet2.trincoll.edu/repec/WorkingPapers2013/WP13-03.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Trinity College, Department of Economics in its series Working Papers with number 1303.

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Length: 12 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:tri:wpaper:1303

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Related research

Keywords: Great Recession; Great Moderation; economic recovery; Keynesian macroeconomics;

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References

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  1. Jordi Galí & Luca Gambetti, 2006. "On the sources of the Great Moderation," Economics Working Papers 1041, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2007.
  2. Palley, Thomas I., 2009. "America's exhausted paradigm: Macroeconomic causes of the financial crisis and great recession," IPE Working Papers 02/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
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Cited by:
  1. Mark Setterfield, 2013. "Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities," Working Papers 1320, Trinity College, Department of Economics.

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