The unemployment rate had soared from under 5 percent to over 20 percent. I examine the recovery of each of these variables in turn. I’ll begin with total factor productivity. Cole and Ohanian (1999) document that, by 1933, TFP was about 15 percent below trend. 2 It might well seem intuitive that such a profound decline would be challenging to reverse.
Eventually, the fragmentation of financial conditions became so severe that we were effectively losing the steering ability of our monetary policy for the euro area as a whole. In this environment, we once again had to act. As our main instrument, we announced the programme of Outright Monetary Transactions (OMT) in secondary government bond markets.