NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Stock Market Crash of 2008 Caused the Great Recession: Theory and Evidence

Roger E.A. Farmer

NBER Working Paper No. 17479
Issued in October 2011
NBER Program(s):   EFG

This paper argues that the stock market crash of 2008, triggered by a collapse in house prices, caused the Great Recession. The paper has three parts. First, it provides evidence of a high correlation between the value of the stock market and the unemployment rate in U.S. data since 1929. Second, it compares a new model of the economy developed in recent papers and books by Farmer, with a classical model and with a textbook Keynesian approach. Third, it provides evidence that fiscal stimulus will not permanently restore full employment. In Farmer's model, as in the Keynesian model, employment is demand determined. But aggregate demand depends on wealth, not on income.

download in pdf format
   (357 K)

email paper

This paper is available as PDF (357 K) or via email.

This paper was revised on February 1, 2012

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17479

Published: Farmer, Roger E.A., 2012. "The stock market crash of 2008 caused the Great Recession: Theory and evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 36(5), pages 693-707. citation courtesy of

Users who downloaded this paper also downloaded these:
Farmer w18007 The Effect of Conventional and Unconventional Monetary Policy Rules on Inflation Expectations: Theory and Evidence
Barro and Ursua w14760 Stock-Market Crashes and Depressions
Farmer w14846 Confidence, Crashes and Animal Spirits
Farmer w17137 Animal Spirits, Financial Crises and Persistent Unemployment
Hurd and Rohwedder w16407 Effects of the Financial Crisis and Great Recession on American Households
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us