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From the Nobel Prize-winning economist and former chair of the U.S. Federal Reserve, a landmark book that provides vital lessons for understanding financial crises and their sometimes-catastrophic economic effectsAs chair of the U.S. Federal Reserve during the Global Financial Crisis, Ben Bernanke helped avert a greater financial disaster than the Great Depression. And he did so by drawing directly on what he had learned from years of studying the causes of the economic catastrophe of the 1930s-work for which he was later awarded the Nobel Prize. Essays on the Great Depression brings together Bernanke's influential work on the origins and economic lessons of the Depression, and this new edition also includes his Nobel Prize lecture

Credit markets, including the market for bank loans, are characterized by imperfect and asymmetric information. These informational frictions can interact with other economic forces to produce periods of credit-market stress, in which intermediation is unusually costly and households and businesses have difficulty obtaining credit. A high level of credit-market stress, as in a severe financial crisis, may in turn produce a deep and prolonged recession. I present evidence that financial distress and disrupted credit markets were important sources of the Great Depression of the 1930s and the Great Recession of 2007–2009. Changes in the state of credit markets also play a role in " garden-variety" business cycles and in the transmission of monetary policy to the economy. (JEL D82, E32, E44, E52, G21, N22)

Este artículo examina los efectos de la crisis financiera de la década de 1930 en la trayectoria del producto agregado durante ese periodo. La perspectiva es complementaria a la de Friedman y Schwartz, quienes enfatizaron el impacto monetario de las quiebras bancarias; nos enfocamos en los aspectos no monetarios (principalmente relacionados con el crédito) del vínculo entre el sector financiero y el producto, y consideramos los problemas de los deudores, así como los del sistema bancario. Argumentamos que las perturbaciones financieras de 1930-1933 redujeron la eficiencia del proceso de asignación de crédito, y que el mayor costo resultante y la menor disponibilidad de crédito actuaron para deprimir la demanda agregada. La evidencia sugiere que los efectos de este tipo pueden ayudar a explicar las inusuales duración y profundidad de la Gran Depresión.

To overcome the limits on traditional monetary policy imposed by the effective lower bound on short-term interest rates, in recent years the Federal Reserve and other advanced-economy central banks have deployed new policy tools. This lecture reviews what we know about the new monetary tools, focusing on quantitative easing (QE) and forward guidance, the principal new tools used by the Fed. I argue that the new tools have proven effective at easing financial conditions when policy rates are constrained by the lower bound, even when financial markets are functioning normally, and that they can be made even more effective in the future. Accordingly, the new tools should become part of the standard central bank toolkit. Simulations of the Fed's FRB/US model suggest that, if the nominal neutral interest rate is in the range of 2–3 percent, consistent with most estimates for the United States, then a combination of QE and forward guidance can provide the equivalent of roughly 3 percentage points of policy space, largely offsetting the effects of the lower bound. If the neutral rate is much lower, however, then overcoming the effects of the lower bound may require additional measures, such as a moderate increase in the inflation target or greater reliance on fiscal policy for economic stabilization. (JEL D78, E31, E43, E52, E58, E62)

Abstract

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Examines the concern of central banks regarding inflation levels, particularly symmetric inflation risks. The potential impacts of very low inflation or deflation on an economy are discussed. Ways for the central bank to stimulate the economy are suggested, & the question of the appropriate inflation rate is pondered. L. Collins