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A New Keynesian Perspective on the Great Recession

  • PETER N. IRELAND

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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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 43 (2011)
Issue (Month): 1 (02)
Pages: 31-54

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Handle: RePEc:mcb:jmoncb:v:43:y:2011:i:1:p:31-54
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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