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From Great Depression to Great Credit Crisis: similarities, differences and lessons
[Germany: Guns, butter, and economic miracles]

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Listed:
  • Miguel Almunia
  • Agustín Bénétrix
  • Barry Eichengreen
  • Kevin H. O’Rourke
  • Gisela Rua

Abstract

The Great Depression of the 1930s and the Great Credit Crisis of the 2000s had similar causes but elicited strikingly different policy responses. While it remains too early to assess the effectiveness of current policy, it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies. We employ vector autoregressions, instrumental variables, and qualitative evidence for 27 countries in the period 1925–39. The results suggest that monetary and fiscal stimulus was effective -- that where it did not make a difference it was not tried. They shed light on the debate over fiscal multipliers in episodes of financial crisis. They are consistent with multipliers at the higher end of those estimated in the recent literature, and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound.— Miguel Almunia, Agustín Bénétrix, Barry Eichengreen, Kevin H. O’Rourke and Gisela Rua

Suggested Citation

  • Miguel Almunia & Agustín Bénétrix & Barry Eichengreen & Kevin H. O’Rourke & Gisela Rua, 2010. "From Great Depression to Great Credit Crisis: similarities, differences and lessons [Germany: Guns, butter, and economic miracles]," Economic Policy, CEPR;CES;MSH, vol. 25(62), pages 219-265.
  • Handle: RePEc:oup:ecpoli:v:25:y:2010:i:62:p:219-265.
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    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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