Understanding the Great Recession

By Federal Reserve Board

We argue that the vast bulk of movements in aggregate real economic activity during the Great Recession were due to nancial frictions interacting with the zero lower bound. We reach this conclusion looking through the lens of a New Keynesian model in which rms face moderate degrees of price rigidities and no nominal rigidities in the wage setting process. Our model does a good job of accounting for the joint behavior of labor and goods markets, as well as in ation, during the Great Recession. According to the model the observed fall in total factor productivity and the rise in the cost of working capital played critical roles in accounting for the small size of the drop in in ation that occurred during the Great Recession.

• Format: Paperback
• Language: English
• ISBN: 1508806381
• ISBN13: 9781508806387
• Release Date: March 2015
• Publisher: Createspace Independent Publishing Platform
• Length: 46 Pages
• Weight: 0.29 lbs.
• Dimensions: 0.1" x 8.5" x 11.0"