Staff Report 421

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The Current Financial Crisis: What Should We Learn from the Great Depressions of the Twentieth Century?

Gonzalo Fernandez de Cordoba - Universidad de Salamanca
Timothy J. Kehoe - Consultant

Revised April 1, 2009

Abstract
Studying the experience of countries that have experienced great depressions during the twentieth century teaches us that massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression.


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