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The Great Depression and the Great Recession: A Comparative Analysis of their Analogies

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  • Peicuti, Cristina

Abstract

The decades preceding the Great Depression and the U.S. subprime mortgage crisis have close similarities. Both decades were characterized by rapid growth without major contractions, by an increase in liquidity, a lack of inflation, and a generalized decrease in risk premiums. Additional similarities included significant changes in the financing of real estate by commercial banks along with a consolidation of the banking sector and high hopes that the efficiency of monetary policy would prevent financial crises. These decades were also characterized by the consolidation of the powers of young central banks (the Federal Reserve System in the 1920s and the European Central Bank in the 2000s), by unsuccessful attempts to control market speculation, by their international dimensions, and by the eruption of crises after the failure of a major American financial institution that could have been avoided. Understanding these analogies help us better identify the causes of the subprime mortgage crisis and prevent history from repeating itself to the extent of such large-scale devastating consequences.

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  • Peicuti, Cristina, 2014. "The Great Depression and the Great Recession: A Comparative Analysis of their Analogies," MPRA Paper 57883, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:57883
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    Cited by:

    1. Raphael Hekimian & David Le Bris, 2016. "US Crashes of 2008 and 1929 How did the French market react? An empirical study," EconomiX Working Papers 2016-21, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    financial crisis; Great Depression; credit; subprime mortgage crisis; liquidity; inflation; central bank; commercial bank;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F01 - International Economics - - General - - - Global Outlook
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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