The US continues to suffer a slow recovery from its biggest drop in output in the post-war period. Although the recession ‘officially’ ended in June 2009, unemployment currently stands at 7.8% - much higher than pre-crisis levels (unemployment was 4.4% in 2006).
There are many potential causes of slow recovery. One leading explanation (Ilzetzki and Pinder 2012) attributes low demand to the financial crisis and the consequent dislocation of capital markets. Although monetary policy has been aggressive, it has reached its limits. Interest rates are close to zero and quantitative easing has hit a point of diminishing returns. The winding down of stimulus spending authorised by the 2009 American Recovery and Reconstruction Act has moved fiscal policy in a contractionary direction.
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