This paper was presented at the 50th Economic Policy Panel Meeting, held in Tilburg on 23–24 October 2009. The authors thank the University of Tilburg for their generosity in hosting the meeting. It is produced as part of the project ‘Historical Patterns of Development and Underdevelopment: Origins and Persistence of the Great Divergence (HI-POD)’, a Collaborative Project funded by the European Commission’s Seventh Research Framework Programme, Contract number 225342. Financial assistance was also received from the Coleman Fung Risk Management Center at the University of California, Berkeley. This paper could not have been written without the generosity of many colleagues who have shared their data with us. We are extremely grateful to Richard Baldwin, Giovanni Federico, Vahagn Galstyan, Mariko Hatase, Pierre-Cyrille Hautcoeur, William Hynes, Doug Irwin, Lars Jonung, Philip Lane, Sibylle Lehmann, Ilian Mihov, Emory Oakes, Albrecht Ritschl, Lennart Schön, Pierre Sicsic, Wim Suyker, Alan Taylor, Bryan Taylor, Gianni Toniolo, Irina Tytell, the staff at the National Library of Ireland, two anonymous referees, and the editor, Philippe Martin.
From Great Depression to Great Credit Crisis: similarities, differences and lessons
Article first published online: 1 APR 2010
© CEPR, CES, MSH, 2010
Volume 25, Issue 62, pages 219–265, April 2010
How to Cite
Almunia, M., Bénétrix, A., Eichengreen, B., O’Rourke, K. H. and Rua, G. (2010), From Great Depression to Great Credit Crisis: similarities, differences and lessons. Economic Policy, 25: 219–265. doi: 10.1111/j.1468-0327.2010.00242.x
The Managing Editor in charge of this paper was Philippe Martin.
- Issue published online: 1 APR 2010
- Article first published online: 1 APR 2010
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