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A New Keynesian Perspective on the Great Recession

  • Peter N. Ireland

    ()

    (Boston College)

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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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 735.

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Date of creation: 01 Apr 2010
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Handle: RePEc:boc:bocoec:735
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