Publication

This paper explores three areas in which the experience of the Great Depression might be relevant today: monetary policy, fiscal policy and the systemic stability of the banking system. With regard to monetary policy, the authors argue that deflation must be avoided. They find that fiscal policy went to the limit of what was possible within the confines of sustainability, as they existed then. Their investigation of the US banking system shows a surprising resilience of the sector: commercial banking operations (deposit-taking and lending) remained profitable even during the worst years. But to prevent future crises of this type, they argue, one should make sure that losses from the investment banking arms cannot impair commercial banking operations.