The Changing Cyclical Variability of Economic Activity in the United States

J. Bradford De Long · Lawrence H. Summers

169 citations0/0 files storedNational Bureau of Economic Research

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Economic Theory and Policy

Abstract

This paper examines the changing cyclical variability of economic activity in the United States.It first shows that the decline in variability since World War II cannot be explained by changes in the composition of economic activity or by the avoidance of financial panics.We then show that increased automatic stabilization by the government, and the increased availability of private credit after World War II combined to stabilize consumption and reduce the variability of aggregate demand.The main argument of the paper holds that greater price rigidity in recent times may have contributed to economic stability by preventing destabilizing deflations and inflations.Empirical evidence is presented to support this proposition.

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References

1981The Adjustment of Consumption to Changing Expectations About Future Income 1966A Monetary History of the United States 1867-1960.1984A Retrospective on the Classical Gold Standard, 1821-1931 1975Keynesian Models of Recession and Depression 1968History of crises under the national banking system 1977Did Monetary Forces Cause the Great Depression?1981Price Inertia and Policy Ineffectiveness in the United States, 1890-1980

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