How to achieve stronger U.S. growth

Abstract

This very sub‐par recovery occurred because the 2007 recession was itself very different from earlier downturns. Previous post‐war recessions were caused by the Federal Reserve raising interest rates to deal with inflation. When the Fed achieved what it wanted, it lowered the interest rate and the economy bounced back. In contrast, the 2007 downturn was caused by a general mispricing of risks, including grossly overpriced houses supported by very high loan‐to‐value mortgages.