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Real Business Cycle Theory and the Great Depression: The Abandonment of the Abstentionist Viewpoint

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Author Info
Michel De Vroey (Department of Economics and IRES, Université catholique de Louvain)
Luca Pensieroso (Department of Economics and IRES, Université catholique de Louvain)

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Abstract

Is the Great Depression amenable to real business cycle theory? In the 1970s and 1980s Lucas and Prescott took an abstentionist stance. They maintained that, because of its exceptional character, an explanation of the Great Depression was beyond the grasp of the equilibrium approach to the business cycle. However, while Lucas stuck to this view, Prescott changed his mind at the end of the 1990s, breaking his earlier self-imposed restraint. In this paper we document this evolution of opinion and produce a first assessment of real business cycle models of the Great Depression. We claim that the fact of having constructed an equilibrium model of the Great Depression constitutes a methodological breakthrough. However, as far as substance is concerned, we argue that the contribution of real business cycle literature on the Great Depression is slim, and does not gain the upper hand over the work of economic historians.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 1 ()
Pages: 1403-1403
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Handle: RePEc:bep:maccon:v:6:y:2006:i:1:p:1403-1403

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Related research
Keywords: great depression new classical macroeconomics real business cycle theory equilibrium unemployment

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Find related papers by JEL classification:
B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Yngve Abrahamsen & Roland Aeppli & Erdal Atukeren & Michael Graff & Christian Müller & Bernd Ships, 2005. "The Swiss Disease: Facts and Artefacts, A Reply to Kehoe and Prescott," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 749-758, July. [Downloadable!] (restricted)
  2. Lee E. Ohanian, 2002. "Why did productivity fall so much during the Great Depression?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr. [Downloadable!]
    Other versions:
  3. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 1-28, February. [Downloadable!] (restricted)
    Other versions:
  4. Harold L. Cole and Lee E. Ohanian, 2004. "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 779-816, August.
    Other versions:
  5. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24. [Downloadable!]
  6. Timothy J. Kehoe & Edward C. Prescott, 2002. "Great Depressions of the Twentieth Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January. [Downloadable!] (restricted)
    Other versions:
  7. Timothy J. Kehoe & Kim J. Ruhl, 2005. "Is Switzerland in a Great Depression?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 759-775, July. [Downloadable!] (restricted)
  8. Luca Pensieroso, 2007. "Real Business Cycle Models Of The Great Depression: A Critical Survey," Journal of Economic Surveys, Blackwell Publishing, vol. 21(1), pages 110-142, 02. [Downloadable!] (restricted)
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  9. Edward C. Prescott, 1986. "Response to a skeptic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 28-33. [Downloadable!]
  10. Lucas, Robert E, Jr & Rapping, Leonard A, 1972. "Unemployment in the Great Depression: Is There a Full Explanation?," Journal of Political Economy, University of Chicago Press, vol. 80(1), pages 186-91, Jan.-Feb.. [Downloadable!] (restricted)
  11. Harold L. Cole & Lee E. Ohanian, 2000. "Re-examining the contributions of money and banking shocks to the U.S. Great Depression," Staff Report 270, Federal Reserve Bank of Minneapolis. [Downloadable!]
  12. Temin, Peter & Wigmore, Barrie A., 1990. "The end of one big deflation," Explorations in Economic History, Elsevier, vol. 27(4), pages 483-502, October. [Downloadable!] (restricted)
  13. Harold L. Cole & Lee E. Ohanian, 2002. "The U.S. and U.K. Great Depressions Through the Lens of Neoclassical Growth Theory," American Economic Review, American Economic Association, vol. 92(2), pages 28-32, May. [Downloadable!]
  14. Lee Ohanian, 2000. "EconomicDynamics Interviews Lee Ohanian on the Great Depression," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 1(2), April. [Downloadable!]
  15. Rees, Albert, 1970. "On Equilibrium in Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 306-10, March-Apr. [Downloadable!] (restricted)
  16. Edward C. Prescott, 1983. ""Can the cycle be reconciled with a consistent theory of expectations?" - or a progress report on business cycle theory," Working Papers 239, Federal Reserve Bank of Minneapolis. [Downloadable!]
  17. repec:cup:macdyn:v:3:y:1999:i:2:p:278-91 is not listed on IDEAS
  18. Snowdon, Brian & Vane, Howard R, 1998. "Transforming Macroeconomics: An Interview with Robert E. Lucas Jr," Journal of Economic Methodology, Taylor and Francis Journals, vol. 5(1), pages 115-46, June.
  19. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct. [Downloadable!] (restricted)
  20. J. Bradford De Long, 1990. ""Liquidation" Cycles: Old-Fashioned Real Business Cycle Theory and the Great Depression," NBER Working Papers 3546, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Edward C. Prescott, 1999. "Some observations on the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 25-29. [Downloadable!]
  22. Lawrence H. Summers, 1986. "Some skeptical observations on real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 23-27. [Downloadable!]
    Other versions:
  23. Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2005004, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall. [Downloadable!]
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