A Model-Based Comparison of the Three Greatest Crisis of the Modern Economic History

We estimate, from a Bayesian approach, a medium-scale DSGE model with several rigidities and enriched with the financial accelerator of Bernanke et al. (1999), for three alternative periods: The Great Depression, The Stagflation, and The Great Recession. We compare the different sources of fluctuations among the subsamples explaining which shocks drove the instability of each period and which frictions were especially important. Moreover, we carry out an optimal monetary policy analysis in order to assess, up to which extent, the crisis could have been mitigated. We demonstrate that the model is able to capture the historical evidence of each period and that monetary policy could have been a powerful tool during the three crisis.