Econbrowser links to a study by Blinder and Zandi, who develop the counterfactual::
Or, one can appeal to extant estimates of multipliers to estimate how the economy would have performed in the absence of fiscal and monetary stimulus and financial system rescuses. That is exactly what is done in a Blinder-Zandi CBPP study, with the results shown in Figure 1.
My take is simpler. There was an initial massive monetary failure, which allowed nominal aggregate spending (NGDP) to crumble. A belated and timid monetary policy reaction, starting with QE1 breathed a little air into the tire, enough for it to “slowly” roll up the hillside.
I agree that the rescue operation for banks and others, in addition to the timid monetary policy reaction, “saved” the economy from the financial propagation mechanism that continued to punish the economy in 1931/32.
In their exercise, B-Z write:
To quantify the economic impacts of the aforementioned panoply of policies, we simulated the Moody’s Analytics model of the U.S. economy under different counterfactual scenarios. In all scenarios, the federal government’s automatic stabilizers—the countercyclical tax and spending policies that are implemented without explicit approval from Congress and the administration—are assumed to operate. So is the traditional monetary policy response via the Federal Reserve’s management of short-term interest rates, albeit constrained by the zero lower bound
To assess the full impact of the policy response, the “No Policy Response” scenario assumes that, apart from the above, policymakers simply sit on their hands in response to the crisis.
So I wonder what makes the economy turn around so briskly after 2011. The turnaround in March 1933 was the direct and immediate result of a monetary regime change.