Why has output expanded slowly in this cycle? A market monetarist perspective

To many, this fact remains a puzzle, especially because the unemployment rate has returned to pre-crisis levels. Maybe by looking at another “deep recession moment” we may “solve” the puzzle. The 1981-82 recession and ensuing recovery comes to mind as a possible control. The first chart compares the two downturns. The 1981-82 downturn was much more acute. That contrasts with the 2007-09 downturn, which was initially quite tame. Why the “delayed” reaction? A possible answer looks to what was happening to monetary policy (NGDP growth). Initially, in both instances, NGDP didn´t change much. However, keep in mind that just prior…

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