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Understanding Economic Crises: The Great Depression and the 2008 Recession

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  • LEE E. OHANIAN

Abstract

Economic crises, involving large and persistent declines in output and employment, are puzzles, particularly in developed countries with economies that typically function at a high level. This article analyses the Great Depression and the 2008 recession using recent developments in business cycle diagnostic procedures, and finds that the key to both episodes is understanding labour market distortions that resulted in the marginal product of labour being much higher than the marginal rate of substitution between consumption and leisure. This finding stands in sharp contrast to the received wisdom, which focuses on the role of banking crises and capital market distortions. The article also discusses possible hypotheses for these labour market distortions. Copyright © 2010 The Economic Society of Australia.

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  • Lee E. Ohanian, 2010. "Understanding Economic Crises: The Great Depression and the 2008 Recession," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 2-6, September.
  • Handle: RePEc:bla:ecorec:v:86:y:2010:i:s1:p:2-6
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    Cited by:

    1. repec:eee:jouret:v:91:y:2015:i:2:p:289-308 is not listed on IDEAS
    2. Marianna Riggi, 2012. "Capital destruction, jobless recoveries, and the discipline device role of unemployment," Temi di discussione (Economic working papers) 871, Bank of Italy, Economic Research and International Relations Area.

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