Advanced Search
MyIDEAS: Login to save this article or follow this journal

How could everyone have been so wrong? Forecasting the Great Depression with the railroads

Contents:

Author Info

  • Klug, Adam
  • Landon-Lane, John S.
  • White, Eugene N.

Abstract

Contemporary observers viewed the recession that began in the summer of 1929 as nothing extraordinary. Recent analyses have shown that the subsequent large deflation was econometrically forecastable, implying that a driving force in the depression was the high expected real interest rates faced by business. Using a neglected data set of forecasts by railroad shippers, we find that business was surprised by the magnitude of the great depression. We show that an ARIMA or Holt-Winters model of railroad shipments would have produced much smaller forecast errors than those indicated by the surveys. The depth and duration of the depression was beyond the experience of business, which appears to have believed that recovery would happen quickly as in previous recessions. This failure to anticipate the collapse of the economy suggests roles for both high real rates of interest and a debt deflation in the propagation of the depression.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6WFJ-4DB57BC-1/2/332348d44bf84328b038a810edfc44d9
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Explorations in Economic History.

Volume (Year): 42 (2005)
Issue (Month): 1 (January)
Pages: 27-55

as in new window
Handle: RePEc:eee:exehis:v:42:y:2005:i:1:p:27-55

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622830

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Hamilton, James D, 1992. "Was the Deflation during the Great Depression Anticipated? Evidence from the Commodity Futures Market," American Economic Review, American Economic Association, vol. 82(1), pages 157-78, March.
  2. Christina D. Romer, 1993. "The Nation in Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 19-39, Spring.
  3. Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March.
  4. Roy H. Webb, 1987. "The irrelevance of tests for bias in series of macroeconomic forecasts," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 3-9.
  5. Hylleberg, S. & Engle, R.F. & Granger, C.W.J. & Yoo, B.S., 1988. "Seasonal, Integration And Cointegration," Papers 6-88-2, Pennsylvania State - Department of Economics.
  6. Romer, Christina D., 1992. "What Ended the Great Depression?," The Journal of Economic History, Cambridge University Press, vol. 52(04), pages 757-784, December.
  7. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  8. Karl Brunner & Allan H. Meltzer, 1968. "What Did We Learn from the Monetary Experience of the United States in the Great Depression?," Canadian Journal of Economics, Canadian Economics Association, vol. 1(2), pages 334-348, May.
  9. Dominguez, Kathryn M & Fair, Ray C & Shapiro, Matthew D, 1988. "Forecasting the Depression: Harvard versus Yale," American Economic Review, American Economic Association, vol. 78(4), pages 595-612, September.
  10. Bonham, Carl & Cohen, Richard, 1995. "Testing the Rationality of Price Forecasts: Comment," American Economic Review, American Economic Association, vol. 85(1), pages 284-89, March.
  11. Martin Evans & Paul Wachtel, 1992. "Were Price Changes during the Great Depression Anticipated? Evidence from Nominal Interest Rates," Working Papers 92-12, New York University, Leonard N. Stern School of Business, Department of Economics.
  12. Charles W. Calomiris, 1993. "Financial Factors in the Great Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 61-85, Spring.
  13. O'Brien, Anthony Patrick, 1989. "The ICC, freight rates, and the Great Depression," Explorations in Economic History, Elsevier, vol. 26(1), pages 73-98, January.
  14. Michael C. Lovell, 1964. "Determinants of Inventory Investment," NBER Chapters, in: Models of Income Determination, pages 177-232 National Bureau of Economic Research, Inc.
  15. Charles Calomiris & David Wheelock, 1998. "Was the Great Depression a Watershed for American Monetary Policy?," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 23-66 National Bureau of Economic Research, Inc.
  16. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September.
  17. Thor Hultcren, 1955. "Forecasts of Railway Traffic," NBER Chapters, in: Short-Term Economic Forecasting, pages 363-380 National Bureau of Economic Research, Inc.
  18. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
  19. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  20. Michael C. Lovell, 1962. "Inventory Investment," Cowles Foundation Discussion Papers 131, Cowles Foundation for Research in Economics, Yale University.
  21. Temin, Peter & Wigmore, Barrie A., 1990. "The end of one big deflation," Explorations in Economic History, Elsevier, vol. 27(4), pages 483-502, October.
  22. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 21-40, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Albrecht Ritschl & Ulrich Woitek, . "Did Monetary Forces Cause the Great Depression? A Bayesian VAR Analysis for the U.S. Economy," IEW - Working Papers 050, Institute for Empirical Research in Economics - University of Zurich.
  2. Ritschl, Albrecht & Woitek, Ulrich, 2000. "Did Monetary Forces Cause the Great Depression?," CEPR Discussion Papers 2547, C.E.P.R. Discussion Papers.
  3. Marc Flandreau & Norbert Gaillard & Frank Packer, 2010. "To err is human: rating agencies and the interwar foreign government debt crisis," BIS Working Papers 335, Bank for International Settlements.
  4. David Grreasley, 2010. "Cliometrics and Time Series Econometrics: Some Theory and Applications," Working Papers in Economics 10/56, University of Canterbury, Department of Economics and Finance.
  5. Gregor W. Smith, 2006. "The Spectre of Deflation: A Review of Empirical Evidence," Working Papers 1086, Queen's University, Department of Economics.
  6. Eugene N. White, 2006. "Anticipating the Stock Market Crash of 1929: The View from the Floor of the Stock Exchange," NBER Working Papers 12661, National Bureau of Economic Research, Inc.
  7. Andrew Filardo & Claudio E. V. Borio, 2004. "Back to the future? Assessing the deflation record," BIS Working Papers 152, Bank for International Settlements.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:exehis:v:42:y:2005:i:1:p:27-55. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.