scholarly journals Handling the Crisis: A Keynesian vs. Austrian Analysis of the “Great Recession”

2021 ◽  
Vol 5 (3) ◽  
Author(s):  
Richard Fast
Keyword(s):  
Great Recession ◽  
Active Role ◽  
Analytical Framework ◽  
Central Banks ◽  
Primary Sources ◽  
Austrian School ◽  
Future Research ◽  
Mainstream Economic ◽  
John Maynard Keynes ◽  
The Great Recession

This paper explores the differences between the mainstream economic interventionist view associated with John Maynard Keynes and the heterodox, non-interventionist Austrian School perspective associated with Friedrich Hayek on the Great Recession of 2007-2009. The literature review compares and contrasts articles explaining each view as they attempt to solve the problem of ending the recession. The heterodox Austrian School/Hayekian view is that central banks should take a hands-off approach to recessions, whereas the mainstream neo-Keynesian view is that central banks should take a more active role through monetary easing in an attempt to end the Great Recession. These two approaches are at odds with each other, but through this thorough and robust analysis, we will understand the similarities (if any) as well as substantial differences and what they can tell us for the next recession. Also included is a section on Methodology to highlight the differences in how economists of both camps conduct their research and present their findings to argue their case. The paper uses an analytical framework to show how the Austrian/Hayekian and Keynesian approaches differ both in content and methodology. The Keynesian perspective makes use of graphs and empirical data in the primary sources referenced to prove that the federal government and the Federal Reserve should have acted more quickly to implement an interventionist economic recovery. On the other hand, the Hayekian/Austrian approach makes use of methodological individualism and praxeology as the lens with which to examine the Great Recession and to show that such economic interventionism had the opposite of the intended effect; intervention, according to the Austrians, made the crisis worse. Not only are their conclusions different, but the means by which they examine the crisis are different as well. Finally, the paper examines some areas for future research on both sides to make each case stronger. Special emphasis is placed on how to develop the arguments of these two views further with regard to future recessions, particularly of the magnitude of the 2007-8 financial crisis.

scholarly journals Handling the crisis: A Keynesian vs. Austrian analysis of the Great Recession

2021 ◽  
Vol 2 (2) ◽  
pp. 17-23
Author(s):  
Richard Fast
Keyword(s):  
Great Recession ◽  
Active Role ◽  
Analytical Framework ◽  
Central Banks ◽  
Primary Sources ◽  
Austrian School ◽  
Future Research ◽  
Mainstream Economic ◽  
John Maynard Keynes ◽  
The Great Recession

This paper explores the differences between the mainstream economic interventionist view associated with John Maynard Keynes and the heterodox, non-interventionist Austrian School perspective associated with Friedrich Hayek on the Great Recession of 2007–2009. The literature review compares and contrasts articles explaining each view as they attempt to solve the problem of ending the recession. The heterodox Austrian School/Hayekian view is that central banks should take a hands-off approach to recessions, whereas the mainstream neo-Keynesian view is that central banks should take a more active role through monetary easing in an attempt to end the Great Recession. These two approaches are at odds with each other, but through this thorough and robust analysis, we will understand the similarities (if any) as well as substantial differences and what they can tell us for the next recession. Also included is a section on Methodology to highlight the differences in how economists of both camps conduct their research and present their findings to argue their case. The paper uses an analytical framework to show how the Austrian/Hayekian and Keynesian approaches differ both in content and methodology. The Keynesian perspective makes use of graphs and empirical data in the primary sources referenced to prove that the federal government and the Federal Reserve should have acted more quickly to implement an interventionist economic recovery. On the other hand, the Hayekian/Austrian approach makes use of methodological individualism and praxeology as the lens with which to examine the Great Recession and to show that such economic interventionism had the opposite of the intended effect; intervention, according to the Austrians, made the crisis worse. Not only are their conclusions different, but the means by which they examine the crisis are different as well. Finally, the paper examines some areas for future research on both sides to make each case stronger. Special emphasis is placed on how to develop the arguments of these two views further with regard to future recessions, particularly of the magnitude of the 2007–2008 financial crisis

scholarly journals Unemployment and spell duration during the Great Recession in the EU

2015 ◽  
Vol 36 (2) ◽  
pp. 216-235 ◽  
Author(s):  
Carlos Gradín ◽  
Olga Cantó ◽  
Coral del Río
Keyword(s):  
Great Recession ◽  
Negative Impact ◽  
Labour Force ◽  
Future Research ◽  
Cross Sectional ◽  
Content Type ◽  
The Great Recession ◽  
Unemployment Spells ◽  
Practical Implications ◽  
The Eu

Purpose – The purpose of this paper is to analyze the different dynamic characteristics of unemployment in a selected group of European Union countries during the current Great Recession, which had unequal consequences on employment depending on the country considered. Design/methodology/approach – The paper follows Shorrocks’s proposal of a duration-sensitive measure of unemployment, and uses cross-sectional data reported by Eurostat coming from European Labour Force Surveys. Findings – The results add some evidence on the relevance of incorporating spells’ duration in measuring unemployment, finding remarkable differences in unemployment patterns in time among European countries. Research limitations/implications – In this paper unemployment is analyzed for all the labor force. Future research should investigate patterns across specific groups such as young people, women, immigrants or the low skilled. Practical implications – It is generally accepted that the negative impact of unemployment on individual welfare can be very different depending on its duration. However, conventional statistics on unemployment do not adequately capture to what extent the recession is not only increasing the incidence of unemployment but also its severity in terms of duration in time of ongoing unemployment spells. The paper shows an easy and practical way to do it in order to improve the understanding of the unemployment phenomenon, using information usually reported by statistical offices. Originality/value – First, the paper provides a tool for dynamic analysis of unemployment based on reported cross-sectional data. Second, the paper demonstrates the empirical relevance of considering spells’ duration when assessing differences in unemployment across countries or in unemployment trends. This is usually neglected or only partially addressed by most conventional measures of unemployment.

Grandparent Coresidence and Family Well-Being

2014 ◽  
Vol 654 (1) ◽  
pp. 110-126 ◽  
Author(s):  
Rachel E. Dunifon ◽  
Kathleen M. Ziol-Guest ◽  
Kimberly Kopko
Keyword(s):  
Marital Status ◽  
Great Recession ◽  
Living Arrangements ◽  
Well Being ◽  
Future Research ◽  
The Great Recession ◽  
The Family ◽  
New Research ◽  
Economic Well Being

U.S. children today have increasingly diverse living arrangements. In 2012, 10 percent of children lived with at least one grandparent; 8 percent lived in three-generational households, consisting of a parent and a grandparent; while 2 percent lived with a grandparent and no parent in the household. This article reviews the literature on grandparent coresidence and presents new research on children coresiding with grandparents in modern families. Findings suggest that grandparent coresidence is quite common and that its prevalence increased during the Great Recession. Additionally, these living arrangements are diverse themselves, varying by the marital status of the parent, the home in which the family lives, and the economic well-being of the family. Suggestions for future research are also proposed.

scholarly journals Capital Adequacy and Liquidity of Global Financial Institutions: A Study of Reforms after the Great Recession

2019 ◽  
Vol 5 (4) ◽  
pp. p419
Author(s):  
Mehdi Monadjemi ◽  
John Lodewijks
Keyword(s):  
Financial Institutions ◽  
Great Recession ◽  
Federal Reserve ◽  
Financial Crises ◽  
Central Banks ◽  
Capital Adequacy ◽  
Federal Reserve Bank ◽  
The Great Recession ◽  
The Great Depression ◽  
Reserve Bank

The global financial crises of 2007-2009 was followed by the Great Recession which was the worst since the Great Depression of 1930s. The crises left significant adverse effects on global growth and employment. Policymakers of affected countries responded differently to the outcomes of these crises. The central banks, including US Federal Reserve Bank and Bank of England, provided ample liquidity for the financial institutions and lowered the interest rate to near zero. The policymakers and regulators realized that capital inadequacy and insufficient liquidity of financial institutions were the main problems preventing the financial firms to protect themselves against major financial crises. In addition, lack of guidelines for compensations encourages managers to take the extra risks. The US Federal Reserve Bank took the initiative, in cooperation with international central banks to introduce rules and regulations to safeguard the financial systems against another major crisis. It is not guaranteed that another episode of financial instability will not happen again. However, with existing regulations on financial institutions in force, the severity of the crises on the whole global financial system may possibly become weaker. This is a conjecture we explore here.

scholarly journals Granger Predictability of Oil Prices After the Great Recession

2019 ◽  
Vol 19 (237) ◽  
Author(s):  
Szilard Benk ◽  
Max Gillman
Keyword(s):  
Great Recession ◽  
Strong Evidence ◽  
Federal Reserve ◽  
Oil Prices ◽  
Central Banks ◽  
Monetary Aggregates ◽  
Shock Period ◽  
The Great Recession ◽  
Oil Shock

Real oil prices surged from 2009 through 2014, comparable to the 1970’s oil shock period. Standard explanations based on monopoly markup fall short since inflation remained low after 2009. This paper contributes strong evidence of Granger (1969) predictability of nominal factors to oil prices, using one adjustment to monetary aggregates. This adjustment is the subtraction from the monetary aggregates of the 2008-2009 Federal Reserve borrowing of reserves from other Central Banks (Swaps), made after US reserves turned negative. This adjustment is key in that Granger predictability from standard monetary aggregates is found only with the Swaps subtracted.

Central Banking before the Great Recession

2018 ◽  
Author(s):  
Francesco Papadia ◽  
Tuomas Vӓlimӓki
Keyword(s):  
Central Bank ◽  
Great Recession ◽  
Financial Stability ◽  
Central Banks ◽  
Central Banking ◽  
Price Stability ◽  
Great Moderation ◽  
The Great Recession ◽  
Advanced Economies ◽  
The Interest Rate

The chapter describes the historical process as well as the analytical and empirical factors that, at the end of the twentieth century, led to the dominance, in advanced economies, of a central bank model based on an independent institution devoted to price stability as its overriding objective. The central bank pre-crisis model was elegant, performing, and efficient. However, it could not easily accommodate the pursuit of a traditionally important central bank objective: financial stability. Indeed, since central banks have, in essence, just one tool, that is, the interest rate, the pursuit of a financial stability objective in addition to a price stability objective could create dilemma situations. In the two decades between the mid-1980s and the mid-2000s, the economies of advanced economies were very stable, and this period was thus identified as Great Moderation. However, subsequent experience showed that, in this period, the crisis was incubating.

A Generalized Exposition of Money Creation in the Money and Banking Course

2019 ◽  
Vol 65 (2) ◽  
pp. 244-263
Author(s):  
Eran Guse ◽  
David W. Brasfield
Keyword(s):  
Production Function ◽  
Great Recession ◽  
Central Banks ◽  
Jel Classification ◽  
The Great Recession ◽  
Exogenous Shocks ◽  
Money Multiplier ◽  
Money Creation ◽  
Money Production ◽  
Standard Production

Since the Great Recession, monetary policy conducted by the U.S. Federal Reserve and other central banks has changed. However, the discussion regarding money creation and the money multiplier has not been altered in undergraduate money and banking textbooks. We suggest a change to the presentation of money creation by first removing the use of T-accounts and replacing them with a visual representation known as the money production diagram. We then present a money production function that is much like a standard production function as described in principles courses. The money multiplier is replaced by the average product of the monetary base in this production function. We use this production function to explain changes to the money supply from exogenous shocks or changes to policy. JEL classification: A22, E51, E52

Unconventional monetary policy in a nonlinear quadratic model

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Timm Faulwasser ◽  
Marco Gross ◽  
Willi Semmler ◽  
Prakash Loungani
Keyword(s):  
Monetary Policy ◽  
Financial Market ◽  
Great Recession ◽  
Central Banks ◽  
Risk Premia ◽  
Credit Spreads ◽  
Dynamic State ◽  
Quadratic Model ◽  
Unconventional Monetary Policy ◽  
The Great Recession

AbstractAfter the financial market meltdown and the Great Recession of the years 2007–9, the financial market-macro link has become an important issue in monetary policy modeling. We develop a dynamic model that contains a nonlinear Phillips curve, a dynamic output equation, and a nonlinear credit flow equation – capturing the importance of credit cycles, risk premia, and credit spreads. Our Nonlinear Quadratic Model (NLQ) model has three dynamic state equations and a quadratic objective function. It can be used to evaluate the response of central banks to the Great Recession in moving from conventional to unconventional monetary policy. We solve the model with a new numerical procedure using estimated parameters for the euro area. We conduct simulations to explore the (de)stabilizing effects of the nonlinearities in the model. We demonstrate that credit flows, risk premia, and credit spreads play an important role as an amplification mechanism and in affecting the transmission of monetary policy. We thereby highlight the importance of the natural rate of interest as an anchor for a central bank target and the weight it places on the credit flows for the effectiveness of unconventional monetary policy. Our model is similar in structure compared to larger scale macro-econometric models which many central banks employ.

The U.S. Monetary Policies Against the Great Recession of 2008: A Critique from the Deflationist Viewpoint of the Austrian School

2016 ◽  
Vol 22 (1) ◽  
Author(s):  
Renaud Fillieule
Keyword(s):  
Central Bank ◽  
Great Recession ◽  
Austrian School ◽  
Monetary Policies ◽  
The Great Recession ◽  
The U.S

AbstractMonetary and credit expansions have been the main tools used by the U.S. government and central bank to try and recover economically from the Great Recession of 2008. This paper expounds a radical criticism of these Keynesian policies, criticism developed by some contemporary economists of the Austrian School: the appropriate and fair remedy for this kind of crisis is not reflation but deflation.

The Great Recession and Health

2013 ◽  
Vol 650 (1) ◽  
pp. 194-213 ◽  
Author(s):  
Sarah A. Burgard ◽  
Jennifer A. Ailshire ◽  
Lucie Kalousova
Keyword(s):  
Great Recession ◽  
Mortality Rates ◽  
Future Research ◽  
Aggregate Level ◽  
Material Hardship ◽  
Individual Level ◽  
The Great Recession ◽  
Recovery Study ◽  
Two Bodies ◽  
Retirement Study

Two research traditions have evolved to assess links between recessions and health, with seemingly divergent findings. Aggregate-level studies generally find that mortality rates decline during recessionary periods. By contrast, individual-level studies generally find that events that frequently occur during recessions, like job loss, unemployment, and material hardship, carry negative health consequences. We comprehensively review evidence from these two bodies of research, illustrate key findings, and show how the different mechanisms can operate in parallel. We also outline some of the limitations of the extant evidence, discuss studies emerging to address these limits and directions for future research, and provide brief empirical examples to illustrate some of these limits and directions using the Health and Retirement Study and the Michigan Recession and Recovery Study. Our review emphasizes the importance of considering both the aggregate- and individual-level associations when evaluating the likely short- and longer-term consequences of the Great Recession for health and health disparities.

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