Economics, Econometrics and Finance
8 years ago

Recessions may be caused by over-investment, leading to inefficient economies.

Reconciling Hayek's and Keynes Views of Recessions
Paul Beaudry, Dana Galizia, Franck Portier

Paper Summary

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Recessions can happen when the economy has too many houses, goods, and capital. Some think recessions are needed to fix this over-investment, while others believe they are caused by not enough demand. A new study shows that both views are connected. Liquidations can lead to inefficient economies with many missed opportunities for trade. Stimulating demand can delay recovery, but some policies can still help in the long run.