Deflation, Real Wages, and the International Great Depression: A Productivity Puzzle
AbstractThe high real wage story is one of the leading hypotheses for how deflation caused the International Great Depression. The story is that world-wide deflation, combined with incomplete nominal wage adjustment, raised real wages in a number of countries, and these higher real wages reduced employment as firms moved up their labor demand curves. This paper studies the high real wage hypothesis in an international cross section of 17 countries between 1930-33 using dynamic, general equilibrium monetary models. We find that the high real wage story by itself does not account for output changes in the international cross section. The models make large errors predicting output in the international cross section, largely because the correlation between real wages and output in the models is -1, while this correlation is positive in the data. This means that the world-wide Depression was not just firms moving up their labor demand curves in response to high real wages. Instead, accounting for the Depression requires a shock that shifts labor demand curves differentially across countries. We add productivity shocks to the model as a candidate labor demand shifter. We find that the productivity shocks in the model are very similar to productivity changes in the data. We also find that productivity shocks account for about 2/3 of output changes, while monetary shocks account for about 1/3 of output changes
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 75.
Date of creation: 11 Aug 2004
Date of revision:
Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Great Depression; monetary shocks; productivity;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2004.
"The Great Depression and the Friedman-Schwartz hypothesis,"
0318, Federal Reserve Bank of Cleveland.
- Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2003. "The Great Depression and the Friedman-Schwartz hypothesis," Proceedings, Federal Reserve Bank of Cleveland, pages 1119-1215.
- Lawrence J. Christiano & Roberto Motto, 2004. "The Great Depression and the Friedman-Schwartz Hypothesis," Computing in Economics and Finance 2004 169, Society for Computational Economics.
- Christiano, Lawrence & Motto, Roberto & Rostagno, Massimo, 2004. "The Great Depression and the Friedman-Schwartz hypothesis," Working Paper Series 0326, European Central Bank.
- Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2004. "The Great Depression and the Friedman-Schwartz Hypothesis," NBER Working Papers 10255, National Bureau of Economic Research, Inc.
- Ester Faia & Alessia Campolmi, 2005. "Inflation Differentials and Different Labor Market Institutions in the EMU," Money Macro and Finance (MMF) Research Group Conference 2005 80, Money Macro and Finance Research Group.
- Jeremy Greenwood & Ananth Seshadri & Guillaume Vandenbroucke, 2002.
"The Baby Boom and Baby Bust,"
Economie d'Avant Garde Research Reports
1, Economie d'Avant Garde.
- Andrew Atkeson & Patrick J. Kehoe, 2004.
"Deflation and Depression: Is There an Empirical Link?,"
American Economic Review,
American Economic Association, vol. 94(2), pages 99-103, May.
- Andrew Atkeson & Patrick Kehoe, 2004. "Deflation and Depression: Is There and Empirical Link?," NBER Working Papers 10268, National Bureau of Economic Research, Inc.
- Andrew Atkeson & Patrick J. Kehoe, 2004. "Deflation and depression: is there an empirical link?," Staff Report 331, Federal Reserve Bank of Minneapolis.
- Barry Eichengreen, 2002. "Still Fettered After All These Years," NBER Working Papers 9276, National Bureau of Economic Research, Inc.
- Luca Pensieroso, 2007.
"Real Business Cycle Models Of The Great Depression: A Critical Survey,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 21(1), pages 110-142, 02.
- Luca, PENSIEROSO, 2005. "Real Business Cycle Models of the Great Depression : a Critical Survey," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2005005, Université catholique de Louvain, Département des Sciences Economiques.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
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.