The Great Depression and the Great Recession: A View from Financial Markets

NBER Working Paper No. 21056

Issued in March 2015, Revised in December 2018

NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics



Similarities between the Great Depression and the Great Recession are documented with respect to the behavior of financial markets. A Great Depression regime is identified by using a Markov-switching VAR. The probability of this regime has remained close to zero for many decades, but spiked for a short period during the most recent financial crisis, the Great Recession. The Great Depression regime implies a collapse of the stock market, with small-growth stocks outperforming small-value stocks. A model with financial frictions and uncertainty about policy makers’ intervention suggests that policy intervention during the Great Recession might have avoided a second Great Depression. A multi-country analysis shows that the Great Depression and Great Recession were not like any other financial crises.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w21056

Published: Francesco Bianchi, 2019. "The Great Depression and the Great Recession: A View from Financial Markets," Journal of Monetary Economics, .

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