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The great demand depression

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  • Weder, Mark

Abstract

This paper entertains the notion that disturbances on the demand side play a central role in our understanding of the Great Depression. In fact, from Euler equation residuals we are able to identify a series of unusually large negative demand shocks that appeared to have hit the U. S. economy during the 1930s. This echoes the view originally promoted by Temin (1976). We apply these measured demand shocks to a dynamic general equilibrium model and find that size and sequence of shocks can generate a pattern of the model economy that is not unlike data. The model is able to account for the lion's share of the decline in economic activity and is able to exaggerate realistic persistence. --

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Bibliographic Info

Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2001,53.

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Date of creation: 2001
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Handle: RePEc:zbw:sfb373:200153

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Keywords: Great Depression; Dynamic General Equilibrium; Demand Shocks;

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  14. Harold L. Cole & Lee E. Ohanian, 2004. "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 779-816, August.
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Cited by:
  1. Luca Pensieroso, 2007. "Real Business Cycle Models Of The Great Depression: A Critical Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 110-142, 02.
  2. Yi Wen, 2006. "Demand shocks and economic fluctuations," Working Papers 2006-011, Federal Reserve Bank of St. Louis.
  3. Yi Wen, 2005. "By force of demand: explaining international comovements and the saving-investment correlation puzzle," Working Papers 2005-043, Federal Reserve Bank of St. Louis.
  4. Weder, Mark, 2003. "Some Observations on the Great Depression in Germany," CEPR Discussion Papers 3716, C.E.P.R. Discussion Papers.
  5. Mark Weder, 2004. "The Role of Preference Shocks and Capital Utilization in the Great Depression," CDMA Working Paper Series 200405, Centre for Dynamic Macroeconomic Analysis.
  6. Wen, Yi, 2007. "By force of demand: Explaining international comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 1-23, January.

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