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From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons

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  • Miguel Almunia
  • Agustín S. 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. It may still be too early to assess the effectiveness of current policy responses, but it is possible to analyze monetary and fiscal policies in the 1930s as a "natural experiment" or "counterfactual" capable of shedding light on the impact of recent policies. We employ vector autoregressions, instrumental variables, and qualitative evidence for a panel of 27 countries in the period 1925-1939. The results suggest that monetary and fiscal stimulus was effective - that where it did not make a difference it was not tried. The results also 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, consistent with the idea that the impact of fiscal stimulus will be greater when banking system are dysfunctional and monetary policy is constrained by the zero bound.

Suggested Citation

  • Miguel Almunia & Agustín S. Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," NBER Working Papers 15524, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15524
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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
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania

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