Advanced Search
MyIDEAS: Login to save this paper or follow this series

How Could Everyone Have Been So Wrong? Forecasting the Great Depression with the Railroads

Contents:

Author Info

  • John Landon-Lane
  • Eugene N. White
  • Adam Klug

Abstract

Contemporary observers viewed the recession that began in the summer of 1929 as nothing extraordinary. Recent analyses have shown that the subsequent large deflation was econometrically forecastable, implying that a driving force in the depression was the high expected real interest rates faced by business. Using a neglected data set of forecasts by railroad shippers, we find that business was surprised by the magnitude of the great depression. We show that an ARIMA or Holt-Winters model of railroad shipments would have produced much smaller forecast errors than those indicated by the surveys. The depth and duration of the depression was beyond the experience of business, which appears to have believed that recovery would happen quickly as in previous recessions. This failure to anticipate the collapse of the economy suggests roles for both high real rates of interest and a debt deflation in the propagation of the depression.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w9011.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9011.

as in new window
Length:
Date of creation: Jun 2002
Date of revision:
Publication status: published as Klug, Adam & Landon-Lane, John S. & White, Eugene N., 2005. "How could everyone have been so wrong? Forecasting the Great Depression with the railroads," Explorations in Economic History, Elsevier, vol. 42(1), pages 27-55, January.
Handle: RePEc:nbr:nberwo:9011

Note: DAE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Charles Calomiris & David Wheelock, 1998. "Was the Great Depression a Watershed for American Monetary Policy?," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 23-66 National Bureau of Economic Research, Inc.
  2. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, American Economic Association, vol. 80(4), pages 714-35, September.
  3. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 257-76, June.
  4. Evans, Martin & Wachtel, Paul, 1993. "Were price changes during the Great Depression anticipated? : Evidence from nominal interest rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(1), pages 3-34, August.
  5. O'Brien, Anthony Patrick, 1989. "The ICC, freight rates, and the Great Depression," Explorations in Economic History, Elsevier, Elsevier, vol. 26(1), pages 73-98, January.
  6. Temin, Peter & Wigmore, Barrie A., 1990. "The end of one big deflation," Explorations in Economic History, Elsevier, Elsevier, vol. 27(4), pages 483-502, October.
  7. Roy H. Webb, 1987. "The irrelevance of tests for bias in series of macroeconomic forecasts," Economic Review, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Nov, pages 3-9.
  8. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 14-31, March.
  9. Bonham, Carl & Cohen, Richard, 1995. "Testing the Rationality of Price Forecasts: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 284-89, March.
  10. Christina D. Romer, 1991. "What Ended the Great Depression?," NBER Working Papers 3829, National Bureau of Economic Research, Inc.
  11. Michael C. Lovell, 1962. "Inventory Investment," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 131, Cowles Foundation for Research in Economics, Yale University.
  12. Hylleberg, S. & Engle, R.F. & Granger, C.W.J. & Yoo, B.S., 1988. "Seasonal, Integration And Cointegration," Papers, Pennsylvania State - Department of Economics 6-88-2, Pennsylvania State - Department of Economics.
  13. Christina D. Romer, 1993. "The Nation in Depression," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 7(2), pages 19-39, Spring.
  14. Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, American Economic Association, vol. 76(1), pages 110-24, March.
  15. Charles W. Calomiris, 1993. "Financial Factors in the Great Depression," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 7(2), pages 61-85, Spring.
  16. Dominguez, Kathryn M & Fair, Ray C & Shapiro, Matthew D, 1988. "Forecasting the Depression: Harvard versus Yale," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 595-612, September.
  17. Hamilton, James D, 1992. "Was the Deflation during the Great Depression Anticipated? Evidence from the Commodity Futures Market," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 157-78, March.
  18. Karl Brunner & Allan H. Meltzer, 1968. "What Did We Learn from the Monetary Experience of the United States in the Great Depression?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 1(2), pages 334-348, May.
  19. Thor Hultcren, 1955. "Forecasts of Railway Traffic," NBER Chapters, in: Short-Term Economic Forecasting, pages 363-380 National Bureau of Economic Research, Inc.
  20. Michael C. Lovell, 1964. "Determinants of Inventory Investment," NBER Chapters, in: Models of Income Determination, pages 177-232 National Bureau of Economic Research, Inc.
  21. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, Elsevier, vol. 19(2), pages 145-169, March.
  22. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 21-40, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Albrecht Ritschl & Ulrich Woitek, . "Did Monetary Forces Cause the Great Depression? A Bayesian VAR Analysis for the U.S. Economy," IEW - Working Papers 050, Institute for Empirical Research in Economics - University of Zurich.
  2. Andrew Filardo & Claudio E. V. Borio, 2004. "Back to the future? Assessing the deflation record," BIS Working Papers 152, Bank for International Settlements.
  3. Marc Flandreau & Norbert Gaillard & Frank Packer, 2010. "To err is human: rating agencies and the interwar foreign government debt crisis," BIS Working Papers 335, Bank for International Settlements.
  4. Gregor W. Smith, 2006. "The Spectre of Deflation: A Review of Empirical Evidence," Working Papers, Queen's University, Department of Economics 1086, Queen's University, Department of Economics.
  5. Eugene N. White, 2006. "Anticipating the Stock Market Crash of 1929: The View from the Floor of the Stock Exchange," NBER Working Papers 12661, National Bureau of Economic Research, Inc.
  6. Ritschl, Albrecht & Woitek, Ulrich, 2000. "Did Monetary Forces Cause the Great Depression?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2547, C.E.P.R. Discussion Papers.
  7. David Greasley & Les Oxley, 2010. "Cliometrics And Time Series Econometrics: Some Theory And Applications," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 24(5), pages 970-1042, December.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9011. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

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.