DeLong Smackdown Watch: Types of Downturns
Business cycles: Is there more than one kind of downturn? | The Economist: I'm need to go catch a flight, so I don't have a lot of time to dig into this, but let me just offer one thought on this view (which is one I've long shared). What if the difference in the outcomes isn't directly due to the differences in causes? What if the difference in outcomes is due to the fact that because the Fed creates a recession through high interest rate, it—by definition—has plenty of room to loosen policy by cutting rates? And when another shock generates the recession, the Fed, often as not, can't drop rates much before hitting the psychological barrier of the zero lower bound? Just a thought.