John At The Center

here is a paper written many years ago by Hal Varian that extends the Goodwin-Kaldor model of business cycles. It is old-fashioned macro, but the interesting part is the wealth effect causing the difference between recessions and depressions. In particular, the results of the paper imply that shocks to wealth that change savings propensities — as we are seeing now — can cause recoveries that “may take a very long time, and differ quite substantially from the recovery pattern of a [typical] recession.”

via Economist’s View: “Catastrophe Theory and the Business Cycle”.