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The great U.K. depression: a puzzle and possible resolution

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Author Info
Harold L. Cole
Lee E. Ohanian

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Abstract

Between 1913 and 1929, real GDP per person in the UK fell 1 percent, while this same measure of economic activity rose about 25 percent in the rest of the world. Why was Britain so depressed in a decade of strong economic activity around the world? This paper argues that the standard explanations of contractionary monetary shocks and an overvalued nominal exchange rate are not the prime suspects for killing the British economy. Rather, we argue that large, negative sectoral shocks, coupled with generous unemployment benefits and housing subsidies, are the primary causes of this long and deep depression.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 295.

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Date of creation: 2001
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Handle: RePEc:fip:fedmsr:295

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Keywords: Depressions ; Unemployment;

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This paper has been announced in the following NEP Reports: 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. Eichengreen, Barry, 1987. "Unemployment in Interwar Britain: Dole or Doldrums?," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 597-623, December. [Downloadable!] (restricted)
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  2. Harold L. Cole & Lee E. Ohanian, 2001. "The great U.K. depression: a puzzle and possible resolution," Staff Report 295, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Maki, Dennis R & Spindler, Zane A, 1975. "The Effect of Unemployment Compensation on the Rate of Unemployment in Great Britain," Oxford Economic Papers, Oxford University Press, vol. 27(3), pages 440-54, November. [Downloadable!] (restricted)
  4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November. [Downloadable!] (restricted)
  5. 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!]
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  6. Metcalf, David & Nickell, Stephen J & Floros, Nicos, 1982. "Still Searching for an Explanation of Unemployment in Interwar Britain," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 386-99, April. [Downloadable!] (restricted)
  7. Benjamin, Daniel K & Kochin, Levis A, 1979. "Searching for an Explanation of Unemployment in Interwar Britain," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 441-78, June. [Downloadable!] (restricted)
  8. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September. [Downloadable!] (restricted)
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  9. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June. [Downloadable!] (restricted)
  10. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June. [Downloadable!] (restricted)
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  11. Harold L. Cole & Lee E. Ohanian, 2001. "New Deal policies and the persistence of the Great Depression: a general equilibrium analysis," Working Papers 597, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  12. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January. [Downloadable!] (restricted)
  13. 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!]
Full references

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. Prescott, Edward & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Working Papers 02-08, Cornell University, Center for Analytic Economics. [Downloadable!]
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  2. Lee E. Ohanian, 2008. "Back to the future with Keynes," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 10-16. [Downloadable!]
  3. Keisuke Otsu, 2007. "A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting of a Small Open Economy," IMES Discussion Paper Series 07-E-16, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  4. Luca, PENSIEROSO, 2005. "Real Business Cycle Models of the Great Depression : a Critical Survey," Discussion Papers (ECON - Département des Sciences Economiques) 2005005, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  5. Michele Boldrin & David K Levine, 2007. "All the Interesting Questions, Almost All the Wrong Reasons," Levine's Working Paper Archive 784828000000000706, David K. Levine. [Downloadable!]
  6. Kaiji Chen & Ayşe İmrohoroğlu & Selahattin İmrohoroğlu, 2007. "The Japanese saving rate between 1960 and 2000: productivity, policy changes, and demographics," Economic Theory, Springer, vol. 32(1), pages 87-104, July. [Downloadable!] (restricted)
  7. Kaiji Chen & Ayse Imrohoroglu & Selo Imrohoroglu, 2005. "Japanese Saving Rate," Macroeconomics 0502017, EconWPA. [Downloadable!]
    Other versions:
  8. Timothy J Kehoe & Kim J. Ruhl, 2003. "Recent Great Depressions: Aggregate Growth in New Zealand and Switzerland," Levine's Bibliography 506439000000000529, UCLA Department of Economics. [Downloadable!]
  9. Kaiji Chen & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2006. "Secular Trends in U.S Saving and Consumption," Computing in Economics and Finance 2006 494, Society for Computational Economics. [Downloadable!]
  10. Harold L. Cole & Lee E. Ohanian, 2002. "The Great U.K. Depression: A Puzzle and Possible Resolution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 19-44, January. [Downloadable!] (restricted)
    Other versions:
  11. Monique Ebell & Albrecht Ritschl, 2007. "Real Origins of the Great Depression: Monopolistic Competition, Union Power, and the American Business Cycle in the 1920s," SFB 649 Discussion Papers SFB649DP2007-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
    Other versions:
  12. Monique Ebell & Albrecht Ritschl, 2008. "Real Origins of the Great Depression: Monopoly Power, Unions and the American Business Cycle in the 1920s," CEP Discussion Papers dp0876, Centre for Economic Performance, LSE. [Downloadable!]
  13. Alexander Ueberfeldt, 2006. "Working Time over the 20th Century," Working Papers 06-18, Bank of Canada. [Downloadable!]
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