A multi-sectoral approach to the U.S. Great Depression
Abstract
We document sectoral differences in changes in output, hours worked, prices, and nominal wages in the United States during the Great Depression. We explore whether contractionary monetary shocks combined with different degrees of nominal wage frictions across sectors are consistent with both sectoral as well as aggregate facts. To do so, we construct a two-sector model where goods from each sector are used as intermediates to produce the sectoral goods that in turn produce final output. One sector is assumed to have flexible nominal wages, while nominal wages in the other sector are set using Taylor contracts. We calibrate the model to the U.S. economy in 1929, and then feed in monetary shocks estimated from the data. We find that while the model can qualitatively replicate the key sectoral facts, it can account for less than a third of the decline in aggregate output. This decline in output is roughly half as large as the one implied by a one-sector model. Alternatively, if wages are set using Calvo-type contracts, the decline in output is even smaller.Download Info
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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0911.Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:fip:fedcwp:0911
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Keywords: Depressions ; Wages ; Prices;Other versions of this item:
- James C. MacGee & Pedro S. Amaral, 2010. "A Multi-sectoral Approach to the U.S. Great Depression," 2010 Meeting Papers 1242, Society for Economic Dynamics.
- NEP-ALL-2010-02-05 (All new papers)
- NEP-CBA-2010-02-05 (Central Banking)
- NEP-DGE-2010-02-05 (Dynamic General Equilibrium)
- NEP-FDG-2010-02-05 (Financial Development & Growth)
- NEP-HIS-2010-02-05 (Business, Economic & Financial History)
- NEP-MAC-2010-02-05 (Macroeconomics)
- NEP-MIC-2010-02-05 (Microeconomics)
References
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- Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, October.
- Michael D. Bordo & Charles L. Evans, 1995.
"Labor Productivity During the Great Depression,"
NBER Working Papers
4415, National Bureau of Economic Research, Inc.
- Bordo, Michael D. & Evans, Charles L., 1995. "Labor productivity during the Great Depression," Economics Letters, Elsevier, vol. 47(1), pages 41-45, January.
- Michael D. Bordo & Charles L. Evans, 1993. "Labor productivity during the Great Depression," Working Paper Series, Macroeconomic Issues 93-10, Federal Reserve Bank of Chicago.
- Alston, Lee J. & Hatton, T. J., 1991. "The Earnings Gap Between Agricultural and Manufacturing Laborers, 1925–1941," The Journal of Economic History, Cambridge University Press, vol. 51(01), pages 83-99, March.
- John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1, October.
- Huw Dixon & Engin Kara, .
"How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley,"
Discussion Papers
05/04, Department of Economics, University of York.
- Dixon, Huw & Kara, Engin, 2006. "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1119-1126, June.
- Huw Dixon & Engin Kara, 2005. " How to Compare Taylor and Calvo Contracts: a comment on Michael Kiley," CDMA Working Paper Series 0504, Centre for Dynamic Macroeconomic Analysis.
- Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages -15 National Bureau of Economic Research, Inc.
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As found by EconAcademics.org, the blog aggregator for Economics research:- A multi-sectoral approach to the U.S. Great Depression
by Christian Zimmermann in NEP-DGE blog on 2010-02-08 01:58:23
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