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Not your older sister’s recession

Summary:
As I keep saying, not only is this not your granddad’s recession; it’s not like any recent recession. Check out these tweets from JW Mason: Those of us who teach basic macro generally use a AS/AD model where recessions can be caused by either demand or supply shocks. Students might get the impression that both types are fairly common. In fact, almost all recessions in the US are due to demand shocks. So when a bona fide supply shock (aka real shock) comes along, we don’t know what to make of it. If the Covid pandemic were to end soon, the economy would recover quickly. If not (and of course it’s not likely to end soon), then there’s a real danger that this morphs into a demand-side recession. But as of today, it still looks like a real shock. In 2009, it

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As I keep saying, not only is this not your granddad’s recession; it’s not like any recent recession. Check out these tweets from JW Mason:

Not your older sister’s recession

Those of us who teach basic macro generally use a AS/AD model where recessions can be caused by either demand or supply shocks. Students might get the impression that both types are fairly common. In fact, almost all recessions in the US are due to demand shocks. So when a bona fide supply shock (aka real shock) comes along, we don’t know what to make of it.

If the Covid pandemic were to end soon, the economy would recover quickly. If not (and of course it’s not likely to end soon), then there’s a real danger that this morphs into a demand-side recession. But as of today, it still looks like a real shock.

In 2009, it was hard to get people to buy houses, cars and boats. If Covid ends, it won’t be hard to get people to go out to eat, go on vacations, or get haircuts.

HT: Matt Yglesias


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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