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dc.contributor.author Beaudry, Paul
dc.contributor.author Galizia, Dana
dc.contributor.author Portier, Franck
dc.date.accessioned 2017-03-23T09:55:37Z
dc.date.available 2017-03-23T09:55:37Z
dc.date.issued 2016-09
dc.identifier.uri http://hdl.handle.net/10230/28284
dc.description.abstract Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions often reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending or any other form of aggregate demand policy should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper, we re-examine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. The model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes' and Hayek's views of recessions may be closely linked. In our framework, interventions aimed at stimulating aggregate demand face a trade-off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions, but where some stimulative policies may nevertheless remain desirable.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;57
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.rights.uri http://creativecommons.org/licenses/by/4.0/
dc.title Reconciling Hayek's and Keynes' views of recessions
dc.type info:eu-repo/semantics/workingPaper
dc.subject.keyword Business cycle
dc.subject.keyword Unemployment
dc.subject.keyword Liquidations
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess

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