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Sources of Output Fluctuations during the Interwar Period: Further Evidence on the Causes of the Great Depression

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  • Cecchetti, Stephen G
  • Karras, Georgios

Abstract

This paper decomposes output fluctuations during the 1913 to 1940 period into components resulting from aggregate supply and aggregate demand shocks. We estimate a number of structural models, all of which yield qualitatively similar results. While identification is normally achieved by assuming that aggregate demand shocks have no long-run real effects, we also estimate models that allow demand shocks to permanently affect output. Our findings support the following three conclusions: (1) there was a large negative aggregate demand shock in November 1929, immediately after the stock market crash; (2) aggregate demand shocks are largely responsible for the decline in output through mid-1931; and (3) beginning in mid-1931 there is an aggregate supply collapse that coincides with the onset of severe bank panics. Copyright 1994 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 76 (1994)
Issue (Month): 1 (February)
Pages: 80-102

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Handle: RePEc:tpr:restat:v:76:y:1994:i:1:p:80-102

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  1. Hyllerberg, S. & Engle, R.F. & Granger, C.W.J. & Yoo, B.S., 1988. "Seasonal Integration And Cointegration," Papers, Pennsylvania State - Department of Economics 0-88-2, Pennsylvania State - Department of Economics.
  2. J. Joseph Beaulieu & Jeffrey A. Miron, 1992. "Seasonal Unit Roots in Aggregate U.S. Data," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0126, National Bureau of Economic Research, Inc.
  3. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, Elsevier, vol. 19(2), pages 145-169, March.
  4. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  5. 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.
  6. Robert J. Gordon & James A. Wilcox, 1978. "Monetarist Interpretations of the Great Depression: An Evaluation and Critique," NBER Working Papers 0300, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Michael D. Bordo & Christopher J. Erceg & Charles L. Evans, 1997. "Money, sticky wages, and the Great Depression," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 591, Board of Governors of the Federal Reserve System (U.S.).
  2. Karras, Georgios & Lee, Jin Man & Stokes, Houston, 2006. "Why are postwar cycles smoother? Impulses or propagation?," Journal of Economics and Business, Elsevier, Elsevier, vol. 58(5-6), pages 392-406.
  3. Hiroshi Nakaota & Yuichi Fukuta, 2013. "The Leading Indicator Property of the Term Spread and the Monetary Policy Factors in Japan," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 13-09-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  4. Fujiwara, Ippei, 2006. "Evaluating monetary policy when nominal interest rates are almost zero," Journal of the Japanese and International Economies, Elsevier, vol. 20(3), pages 434-453, September.
  5. Miyazaki, Tomomi, 2009. "Public investment and business cycles: The case of Japan," Journal of Asian Economics, Elsevier, Elsevier, vol. 20(4), pages 419-426, September.
  6. Bordo, Michael D & Choudhri, Ehsan U & Schwartz, Anna J, 1995. "Could Stable Money Have Averted the Great Contraction?," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 33(3), pages 484-505, July.
  7. Masahiko Shibamoto & Ryuzo Miyao, 2008. "Understanding Output and Price Dynamics in Japan: Why Have Japan's Price Movements Been Relatively Stable Since the 1990s?," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 219, Research Institute for Economics & Business Administration, Kobe University.
  8. Michael D. Bordo & Lars Jonung, 1996. "Monetary Regimes, Inflation And Monetary Reform: An Essay in Honor of Axel Leijonhufvud," Departmental Working Papers, Rutgers University, Department of Economics 199407, Rutgers University, Department of Economics.
  9. James L. Butkiewicz & Kim Lane Leong Long, 2003. "Predicting Interwar Business Cycles with the Interest Rate Yield Spread," Working Papers, University of Delaware, Department of Economics 03-07, University of Delaware, Department of Economics.
  10. Miyazaki, Tomomi, 2010. "The effects of fiscal policy in the 1990s in Japan: A VAR analysis with event studies," Japan and the World Economy, Elsevier, Elsevier, vol. 22(2), pages 80-87, March.
  11. Michael D. Bordo & Anna J. Schwartz, 1994. "The Specie Standard as a Contingent Rule: Some Evidence for Core and Peripheral Countries, 1880-1990," NBER Working Papers 4860, National Bureau of Economic Research, Inc.
  12. José U. Mora, 2008. "Relative importance of foreign and domestic shocks in the Venezuelan economy," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 33(25), pages 61-86, january-j.
  13. Nakaota, Hiroshi & Fukuta, Yuichi, 2013. "The leading indicator property of the term spread and the monetary policy factors in Japan," Japan and the World Economy, Elsevier, Elsevier, vol. 28(C), pages 85-98.
  14. Miyao, Ryuzo, 2000. "The Role of Monetary Policy in Japan: A Break in the 1990s?," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 366-384, December.
  15. Fisher, Lance A. & Huh, Hyeon-Seung & Summers, Peter M., 2000. "Structural Identification of Permanent Shocks in VEC Models: A Generalization," Journal of Macroeconomics, Elsevier, Elsevier, vol. 22(1), pages 53-68, January.

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