Friday, April 16, 2010

Comparing 1929-1933 and 2007-2009

The Great Recession is the worst financial disruption since the Great Depression, but the current economic contraction has been mild compared to that of the 1930s, as we claimed in this blog from the start of the crisis.

The following table from David C. Wheelock (“Lessons Learned? Comparing the Federal Reserve’s Responses to the Crises of 1929-1933 and 2007-2009”, Federal Reserve Bank of St. Louis REVIEW, March/April 2010), clearly summarizes the evidence.

According to the author, the modern Fed appears to have learned the main lesson from the past: central banks should respond aggressively to financial crises to prevent a collapse of the money stock and price level.

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