So I’m giving the Robbins lectures in a couple of weeks, which means that I have to actually think a bit. And one thing I’ve been thinking about is the changing nature of recessions. Here’s one bit of that: looking at interest rates.

First, let’s look at short-term interest rates in the first month of recessions, identified here by their starting year:

Second, let’s look at the change in interest rates over the year prior to the recession:

What seems clear is that the nature of monetary policy leading up to recessions has changed dramatically. Pre-Great Moderation, recessions were preceded by tightening policy, presumably to control inflation; the combination of policy tightening and a high underlying inflation rate meant high rates going in, giving lots of room for policy loosening. Increasingly, however, recessions have been the result of bursting bubbles, with monetary policy getting looser even before the recession begins.

Lots of implications, which I’ll draw out on later occasions.