Working Paper: NBER ID: w16420
Authors: Peter N. Ireland
Abstract: With an estimated New Keynesian model, this paper compares the "Great Recession" of 2007-09 to its two immediate predecessors in 1990-91 and 2001. The model attributes all three downturns to a similar mix of aggregate demand and supply disturbances. The most recent series of adverse shocks lasted longer and became more severe, however, prolonging and deepening the Great Recession. In addition, the zero lower bound on the nominal interest rate prevented monetary policy from stabilizing the US economy as it had previously; counterfactual simulations suggest that without this constraint, output would have recovered sooner and more quickly in 2009.
Keywords: Great Recession; New Keynesian Model; Monetary Policy; Aggregate Demand; Aggregate Supply
JEL Codes: E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Great Recession (2007-2009) (G01) | aggregate demand and supply disturbances (E00) |
| adverse preference and technology shocks (D11) | severity of the Great Recession (F44) |
| zero lower bound on nominal interest rates (E43) | length and severity of the Great Recession (N12) |
| Federal Reserve's ability to lower interest rates (E52) | economic recovery speed and robustness (E32) |
| aggregate demand and supply disturbances (E00) | output growth (O40) |
| aggregate demand and supply disturbances (E00) | inflation (E31) |
| aggregate demand and supply disturbances (E00) | interest rates (E43) |