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Great recession versus great depression: monetary, fiscal and banking policies

Cinzia Alcidi (Centre for European Policy Studies, Brussels, Belgium)
Daniel Gros (Centre for European Policy Studies, Brussels, Belgium)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 1 November 2011




This paper sets out to explore three areas in which the experience of the great depression might be relevant today: monetary policy, fiscal policy, and the systemic stability of banks.


A critical review of the US data for the 1920s and 1930s is presented and stylised facts for monetary, fiscal and banking policies during the noughties are shown and compared with those of the great depression.


The authors confirm the consensus on monetary policy: deflation and massive bank failures must be avoided. With regard to fiscal policy it is impossible to confirm a widespread opinion according to which fiscal policy did not work because it was not tried. The paper finds that fiscal policy went to the limit of what was possible under the conditions as they existed then. Policy reaction after 1932 was no less bold than that of today if one accounts for sustainability issues. Lastly, the investigation of the US banking system shows a surprising resilience of commercial banks that remained profitable, at least on average, even during the worst years.


First, the paper presents a systematic comparison between the great depression and the great recession, highlighting similarities and differences. Second, it suggests a relevant policy implication. Findings on commercial bank sector resilience suggest that at present national authorities have little choice but to make up for the losses on “legacy” assets and wait for banks to earn back their capital. However, to prevent future crises, at least a partial separation of commercial and investment banking seems justified.



Alcidi, C. and Gros, D. (2011), "Great recession versus great depression: monetary, fiscal and banking policies", Journal of Economic Studies, Vol. 38 No. 6, pp. 673-690.



Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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