What Caused the Great Recession in the Eurozone?

Abstract

Since 2008, the Eurozone has undergone two recessions, which together constitute the "Great Recession." The combination of a decline in output and disinflation as well as a persistent decline in inflation suggests that contractionary monetary policy was one factor. This paper makes two methodological points. First, in analyzing the causes of the Great Recession, it is important to distinguish between credit and monetary policy. Second, a multiplicity of estimated models can "explain" the Great Recession. In practice, economists choose between models through an associated narrative that adds additional information about causation.