Saturday, April 11, 2009

Two Depressions - Now vs Then (fg)

I am excited how much only a few macro figures can say about the ongoing recession. Barry Eichengreen and Kevin O´Rourke provide them on The time period is in montsh and data start at the onset of the crisis.

Figure 1: World Industrial Output, Now vs Then

Figure 2: World Stock Prices, Now vs Then

Figure 3: Volume of World Trade, Now vs Then

Figure 4: World Disount Rates, Now vs Then

Figure 5: World Money Supply, Now vs Then

Figure 6: Government Budget Surplus, Now vs Then

The economic shock is on a gobal level at least as large and severe than the shock hitting the countries in 1930. Moreover, as I read the figures, monetary policy is not that quite different. We see a time lag of five or six months before discount rates responded to the passing of the peak. The lower level nowadays is in my view not relevant for the question whether monetary policy responded more aggressively. We can also see that money supply expands more rapidly. However, it may not be due to ggressively cutting rates but by further monetary policy actions to improve balance sheets of banks.
Indeed, the major difference seems to be fiscal policy that operates much more expansionary compared to the 30s.