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The role of real wages, productivity, and fiscal policy in Germany's Great Depression, 1928-37

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  • Jonas D. M. Fisher
  • Andreas Hornstein

Abstract

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy was procyclical. We use the neoclassical growth model to investigate how much these factors contribute to the depression. We find that real wages, which were significantly above their market clearing levels, were the most important factor for the economic decline in the depression. Changes in productivity and fiscal policy were also important for the decline and recovery. Even though our analysis is limited to a small number of factors, the model accounts surprisingly well for the Depression in Germany.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 01-07.

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Date of creation: 2001
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Handle: RePEc:fip:fedrwp:01-07

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Keywords: Depressions ; Wages ; Productivity ; Fiscal policy;

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References

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  1. Craig Burnside & Martin Eichenbaum & Jonas D.M. Fisher, 2000. "Assessing the Effects of Fiscal Shocks," NBER Working Papers 7459, National Bureau of Economic Research, Inc.
  2. 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.
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Cited by:
  1. Mark Weder, 2004. "A Heliocentric Journey into Germany's Great Depression," Money Macro and Finance (MMF) Research Group Conference 2004 53, Money Macro and Finance Research Group.
  2. Weder, Mark, 2003. "Some Observations on the Great Depression in Germany," CEPR Discussion Papers 3716, C.E.P.R. Discussion Papers.
  3. Albrecht Ritschl & Tobias Straumann, 2009. "Business cycles and economic policy, 1914-1945: a survey," Economic History Working Papers 22402, London School of Economics and Political Science, Department of Economic History.
  4. Harold L. Cole & Lee E. Ohanian, 2013. "The Impact of Cartelization, Money, and Productivity Shocks on the International Great Depression," NBER Working Papers 18823, National Bureau of Economic Research, Inc.

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