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Working Papers

July 2013, No. 13-07R

Can Monetarists Explain Recession in the Eurozone? (Revised August 2015)

Robert L. Hetzel

Since 2008, the Eurozone has undergone two recessions, which together constitute the Great Recession. During this Great Recession, monetary policy displayed the hallmarks criticized by monetarists. As a consequence of concern for high inflation, the central bank put inertia into downward movements in its policy rate while the economy weakened, and money growth declined. The Great Recession is one observation supporting the monetarist hypothesis that contractionary monetary policy is a necessary condition for a severe recession.


*This paper was previously published under the titles "A Monetarist Critique of ECB Monetary Policy in the Great Recession" and "Contractionary Monetary Policy Caused the Great Recession in the Eurozone: A New Keynesian Perspective."