The Great Depression, the Global Financial Crisis and Old Versus New Keynesian Thinking: What Have We Learned and What Remains To Be Learned?

Following a brief overview of major developments in macroeconomic thought since the Keynesian revolution in the introduction the paper features three main sections plus a conclusion. The first section presents a detailed comparison of background institutions, policy responses and economic performance during the great depression (GD) and the Global Financial Crisis (GFC). The second section discusses the role of lessons from the GD in shaping fiscal and monetary policy responses to the GFC as well as newer problems that emerged during the second crisis. Among the newer issues are runs between financial institutions, the role of financial derivatives, the opaqueness of securitization, the too big to fail problem, the incompleteness of micro-based risk assessments by financial institutions and a modern reinterpretation of the liquidity trap. The next section contains a systematic comparison of the methodological similarities and differences between old Keynesian economics and its recent New Keynesian Economics reincarnation. The concluding section points out missing elements in both old and new Keynesian methodologies and speculates about the likely path of future macroeconomic research in the aftermath of the GFC.