Similar Results from an Extended Sample Period and Concluding Remarks to Guide Future Work

This chapter extends the sample period for some of the empirical work from earlier chapters. Many of the results presented continue to support the view that negative AD shocks can have long-lasting consequences, thus enhancing robustness. To begin to explain the importance of AD, this chapter notes that rising economic inequality could be a factor. Keynes’ observation that income saved today is not necessarily spent tomorrow can help to improve our understanding. Regarding policy implications, to try to prevent downward breaks in real GDP and employment, policymakers can consider implementing fiscal policy and monetary policy more expansionary than during the recessions and recoveries of most recent recessions with the possible exception of the COVID-19 recession, where policy was relatively expansionary. A job guarantee program could lessen the loss of employment and output usually associated with downturns, as well as provide much needed income to those who otherwise would not have employment. Future work could better explain hysteresis and secular stagnation. It could also test for cointegration between real GDP, employment, and perhaps other variables but in light of possible breaks. Future work could also attempt to improve the IS-LM model.