The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents
Karl Aiginger/May 2010/Economics-ejournal.org
The aim of this paper is to investigate whether the drop in economic activity in the recent crisis1 has been as large as in the Great Depression of the nineteen thirties…The data show that the drop in activity has definitely been smaller in the recent crisis. The crisis had however the potential to become as severe as the Great Depression…In the recent crisis economic policy reacted expeditiously, prudently, and to a surprising extent coordinated at an international level.
The Great Recession and Its Aftermath from a Monetary Equilibrium Perspective
Steven Horwitz and William Luther/Oct 2010/Mercatus Center, George Mason University
We argue that the primary source of business fluctuation observed over the last decade is monetary disequilibrium. Additionally, we claim that unnecessary intervention in the banking sector distorted incentives, nearly resulting in the collapse of the financial system, and that policies enacted to remedy the recession and financial instability have likely made things worse…The origins of the Great Recession in the housing market have been well documented. Austrian economists have consistently argued that excessively expansionary monetary policy generated a credit boom while a series of regulatory and institutional interventions encouraged the resulting malinvestment to concentrate in the real estate sector of the economy. Policy errors—not a market gone mad—created a bubble that eventually had to burst.
internal Sources of Finance and the Great Recession
Michelle L. Barnes and N. Aaron Pancost/Dec 2010/Boston Federal Reserve
The financial crisis and ensuing credit supply shock that began in August 2007 was distinguished in part by the largest and most persistent drop in real private nonresidential equipment and software investment growth since the Bureau of Economic Analysis (BEA) began data collection in 1947. At the same time, aggregate cash holdings as a share of total assets for non-financial corporations were at a 30-year high as the crisis began, which should have provided firms with a very large cushion to absorb any shock to the supply of credit…
We show, using accounting identities and a few simplifying assumptions, that the large build-up in cash noted by Bates, Kahle, and Stulz (2009) and other authors is the result of increased saving of internally generated cash flows. Consistent with a precautionary motive for saving cash, we show that rms that had stock-piled more internal cash had better investment outcomes in the Great Recession than other firms.
Effects of the Financial Crisis and Great Recession on American Households
Michael Hurd and Susann Rohwedder/Nov 2010/Rand Corp
In this paper we present results about the effects of the economic crisis and recession on American households. They come from high-frequency surveys dedicated to tracking the effects of the crisis and recession that we conducted in the American Life Panel – an Internet survey run by RAND Labor and Population. The first survey was fielded at the beginning of November 2008, immediately following the large declines in the stock market of September and October. The next survey followed three months later in February 2009. Since May 2009 we have collected monthly data on the same households…
According to our measures almost 40% of households have been affected either by unemployment, negative home equity, arrears on their mortgage payments, or foreclosure. Additionally economic preparation for retirement, which is hard to measure, has undoubtedly been affected. Many people approaching retirement suffered substantial losses in their retirement accounts: indeed in the November 2008 survey, 25% of respondents aged 50-59 reported they had lost more than 35% of their retirement savings, and some of them locked in their losses prior to the partial recovery in the stock market by selling out. Some persons retired unexpectedly early because of unemployment, leading to a reduction of economic resources in retirement which will be felt throughout their retirement years. Some younger workers who have suffered unemployment will not reach their expected level of lifetime earnings and will have reduced resources in retirement as well as during their working years.
Unconventional Monetary Policy and the Great Recession – Estimating the Impact of a Compression in the Yield Spread at the Zero Lower Bound
Christiane Baumeister and Luca Benati/Oct 2010/European Central Bank
The paper’s main focus is on two questions:
• ‘How effective have central banks’ unconventional monetary policy actions been at countering the recessionary shocks associated with the 2007-2009 financial crisis?’
• ‘More generally, how powerful is monetary policy at the zero lower bound, once all traditional ammunition has been exhausted?’
The paper’s main results may be summarised as follows:
First, in all the countries which are analysed herein, a compression in the longterm yield spread exerts a powerful effect on both output growth and inflation.
Second, evidence clearly highlights the importance of allowing for time variation, as the impact of a spread compression exhibits, in several cases, important changes over the sample period. In the United States, for example, the impact on inflation exhibits three peaks corresponding to the Great Inflation of the 1970s, the recession of the early 1990s, and the most recent period, whereas the 1990s were characterised by a significantly weaker impact. By the same token, in the United Kingdom the impact on both inflation and output growth appears to have become stronger in recent years.This automatically implies that, for the present purposes, the use of fixed-coefficient models estimated over (say) the last two decades would offer a distorted picture, as it would under-estimate the impact resulting from yield spread compressions engineered by central banks via asset purchase programmes in countering the recessionary shocks associated with the 2007-2009 financial crisis.
Third, conditional on Gagnon et al.’s (2010) estimates of the impact of the FED’s asset purchase programme on the 10-year government bond yield spread, counterfactual simulations indicate that U.S. unconventional monetary policy actions have averted significant risks both of deflation and of output collapses comparable to those that took place during the Great Depression. The same holds true for the United Kingdom conditional on Bean’s (2009) broad estimate of the impact of the Bank of England’s asset purchase programmes on long-term yield spreads.