Several quasi-monetarist bloggers like Scott Sumner, David Beckworth, Bill Woolsey, and myself have all been making the claim that the recession can be blamed — at least in part — on tight monetary policy as reflected in the collapse in nominal spending.
As further evidence that this might be the case beyond the United States, Kantoos, a blog reader and fellow blogger, sent me a link to a recent post on nominal GDP of the Eurozone-15 from 1996 to the most recent data release. The graph shows the trend of NGDP for the Eurozone-15, the actual trajectory, and the percentage deviation from trend. As can be seen from the graph, in late 2008 NGDP began to fall significantly below trend. While NGDP has started to grow, it is still well below the trend line — nearly 10%.
Looking at this graph, I was struck by the fact that this is remarkably similar to situation in the United States. In addition, it raises serious questions about the monetary policy of the ECB — especially considering the severity of the collapse for some of the countries in the Eurozone.