Was the Great Recession an AD or AS Shock?

I’ve tooted Casey Mulligan’s horn quite a bit this semester. Mulligan is a new classical macroeconomist: everything is about supply rather than demand.

Here’s an alternative viewpoint from Menzie Chinn, writing at Econbrowser.

Chinn’s position is pretty simple. If AS shifted left, real GDP would go down, but prices would go up. If AD shifted left, both would go down.

Y’all should be familiar with how real GDP has behaved, so here’s Chinn’s chart of prices:

I think Chinn is right: what happened in late 2008 and early 2009 was a shift of AD to the left. An appropriate response to that is expansionary fiscal and monetary policy: like the Bush or Obama stimulus packages, or the various monetary policy programs that have been pursued.

But, I also think Chinn has oversold his case. We have had weak real GDP growth for throughout an expansion that is approaching its fifth birthday. This has not been accompanied by falling prices. To me, this means that Chinn may be right about 2008-9, but that Mulligan may be right about 2009-2014.