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

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Author Info
Jonas D. M. Fisher
Andreas Hornstein

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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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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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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. 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!]
  2. 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. [Downloadable!] (restricted)
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(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. Weder, Mark, 2003. "Some Observations on the Great Depression in Germany," CEPR Discussion Papers 3716, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Weder, Mark, 2004. "A Heliocentric Journey into Germany's Great Depression," CEPR Discussion Papers 4191, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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