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Comparing Stock Market Declines over the past 30 Years

Last update on: Mar 14 2020

The recent market turmoil stimulated a lot of discussion and tried to compare events with major market declines of the past. This article says the correction in February 2018 is more similar to the October 1987 decline than to others.

Despite all the drama on Wall Street in 1987, the impact on economic activity was muted. Consumer spending dropped sharply in October, owing to negative wealth effects and heightened uncertainty, but it quickly stabilized and recovered, while investment spending remained essentially unchanged.

What accounted for the limited fallout? First, the Fed, under its brand-new chairman, Alan Greenspan, loosened monetary policy, reassuring investors that the crash would not create serious liquidity problems. Market volatility declined, as did the associated uncertainty, buttressing consumer confidence.

Second, the crash did not destabilize systemically important financial institutions.

 

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