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Reading Keynes At The Zero Lower Bound: The Great Depression, The Liquidity Trap, And Unconventional Policy

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  • Sutch, Richard

Abstract

John Maynard Keynes’s analysis of the Great Depression has strong parallels to recent theorizing about the post-2008 Great Recession. There are also remarkable similarities between the two historical episodes: the collapse of demand for new fixed investment, the role of the zero lower bound liquidity trap in hampering conventional monetary policy, the multi-year period of near-zero short-term rates, and the protracted period of subnormal prosperity. A major difference between then and now is that monetary authorities in the recent situation actively pursued an unconventional policy with massive purchases of long-term securities. Keynes couldn’t convince authorities of his era to pursue such a plan, but it was precisely the monetary policy he advocated for a depressed economy stuck at the zero lower bound of nominal interest rates.

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  • Sutch, Richard, 2018. "Reading Keynes At The Zero Lower Bound: The Great Depression, The Liquidity Trap, And Unconventional Policy," Journal of the History of Economic Thought, Cambridge University Press, vol. 40(3), pages 301-334, September.
    • Handle: RePEc:cup:jhisec:v:40:y:2018:i:03:p:301-334_00
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    Cited by:

    1. Robert Rowthorn, 2019. "Keynesian Economics - Back from the Dead? The Godley-Tobin Lecture," Working Papers wp512, Centre for Business Research, University of Cambridge.

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