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The Great Recession versus the Great Depression: stylized facts on siblings that were given different foster parents


  • Aiginger, Karl


This paper compares the depth of the Recent Crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the Recent Crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the Recent Crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators overall will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and priced, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated. During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the Recent Crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but it shows that the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit the depth of the Recent Crisis.

Suggested Citation

  • Aiginger, Karl, 2010. "The Great Recession versus the Great Depression: stylized facts on siblings that were given different foster parents," Economics Discussion Papers 2010-9, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:20109

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    References listed on IDEAS

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    Cited by:

    1. Karl Aiginger & Thomas Horvath & Helmut Mahringer, 2012. "Why Labor Market Response Differed in the Great Recession: The Impact of Institutions and Policy," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 3, pages 1-19, September.
    2. Karl Aiginger & Alois Guger, 2014. "Stylized Facts on the Interaction between Income Distribution and the Great Recession," Research in Applied Economics, Macrothink Institute, vol. 6(3), pages 157-178, September.
    3. Karl Aiginger & Susanne Bärenthaler-Sieber & Johanna Vogel, 2013. "Competitiveness under New Perspectives," WWWforEurope Working Papers series 44, WWWforEurope.
    4. Karl Aiginger, 2016. "Political Rebound Effects as Stumbling Blocks for Socio-ecological Transition," WIFO Working Papers 519, WIFO.
    5. Karl Aiginger & Susanne Bärenthaler-Sieber & Johanna Vogel, 2015. "Competitiveness of EU vs. US," WWWforEurope Policy Paper series 29, WWWforEurope.
    6. Georg Licht & Bettina Peters & Christian Köhler & Franz Schwiebacher, 2014. "The Potential Contribution of Innovation Systems to Socio-Ecological Transition," WWWforEurope Deliverables series 4, WWWforEurope.
    7. Karl Aiginger, 2011. "Why Growth Performance Differed across Countries in the Recent Crisis: the Impact of Pre-crisis Conditions," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 35-52, August.
    8. Karl Aiginger & Margit Schratzenstaller, 2010. "Budget Consolidation in a Difficult Environment – Ten Guidelines Plus a Preliminary Reality Check," WIFO Working Papers 381, WIFO.

    More about this item


    Financial crisis; business cycle; stabilisation policy; resilience;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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