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Prices during the Great Depression: Was the Deflation of 1930-1932 Really Unanticipated?

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  • Cecchetti, Stephen G

Abstract

This paper examines inflationary expectations in order to investigate whether the deflation of 1930-32 could have been anticipated. The major conclusion is that beginning in late 1930, and possibly as early as late 1929, deflation could have been anticipated at horizons of three-six months. This implies, in turn, that short-run ex ante real interest rates were very high during the initial phases of the Great Depression. These results provide further support for the proposition that monetary contraction was the driving force behind the economic decline. Copyright 1992 by American Economic Association.

Suggested Citation

  • Cecchetti, Stephen G, 1992. "Prices during the Great Depression: Was the Deflation of 1930-1932 Really Unanticipated?," American Economic Review, American Economic Association, vol. 82(1), pages 141-156, March.
  • Handle: RePEc:aea:aecrev:v:82:y:1992:i:1:p:141-56
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Inflation Expectations: How Credibility Pays Off
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-07-31 17:19:31
    2. Why a gold standard is a very bad idea
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-12-19 19:51:14

    Citations

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    Cited by:

    1. Gauti B. Eggertsson, 2012. "Was the New Deal Contractionary?," American Economic Review, American Economic Association, vol. 102(1), pages 524-555, February.
    2. repec:prg:jnlpol:v:2017:y:2017:i:3:id:1148:p:351-369 is not listed on IDEAS
    3. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234 Elsevier.
    4. Gauti B. Eggertsson, 2008. "Great Expectations and the End of the Depression," American Economic Review, American Economic Association, vol. 98(4), pages 1476-1516, September.
    5. Weber Ernst Juerg, 2010. "The Role of the Real Interest Rate in U.S. Macroeconomic History," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-26, April.
    6. Binder, Carola Conces, 2016. "Estimation of historical inflation expectations," Explorations in Economic History, Elsevier, vol. 61(C), pages 1-31.
    7. Joshua K. Hausman & Johannes F. Wieland, 2014. "Abenomics: Preliminary Analysis and Outlook," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 1-76.
    8. Christian Bauer & Sebastian Weber, 2016. "The Efficiency of Monetary Policy when Guiding Inflation Expectations," Research Papers in Economics 2016-14, University of Trier, Department of Economics.
    9. Haelim Anderson & Daniel Barth & Dong Beom Choi, 2018. "Reducing Moral Hazard at the Expense of Market Discipline: The Effectiveness of Double Liability Before and During the Great Depression," Working Papers 18-06, Office of Financial Research, US Department of the Treasury.
    10. Rockoff, Hugh & White, Eugene N., 2012. "Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo," MPRA Paper 49672, University Library of Munich, Germany, revised May 2013.
    11. Taylor, Jason E. & Neumann, Todd C., 2016. "Recovery Spring, Faltering Fall: March to November 1933," Explorations in Economic History, Elsevier, vol. 61(C), pages 54-67.
    12. Gabriel Mathy & Herman O. Stekler, 2016. "Expectations and Forecasting during the Great Depression: Real-Time Evidence from the Business Press," Working Papers 2016-011, The George Washington University, Department of Economics, Research Program on Forecasting.
    13. repec:eee:jimfin:v:86:y:2018:i:c:p:70-92 is not listed on IDEAS
    14. Shibamoto, Masahiko & Shizume, Masato, 2014. "Exchange rate adjustment, monetary policy and fiscal stimulus in Japan's escape from the Great Depression," Explorations in Economic History, Elsevier, vol. 53(C), pages 1-18.
    15. Gabriel Mathy & Herman O. Stekler, 2017. "Was the Deflation of the Depression Anticipated? An Inference Using Real-time Data," Working Papers 2017-004, The George Washington University, Department of Economics, Research Program on Forecasting.
    16. repec:eee:jmacro:v:53:y:2017:i:c:p:1-15 is not listed on IDEAS
    17. Gimeno, Ricardo & Ibáñez, Alfredo, 2018. "The eurozone (expected) inflation: An option's eyes view," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 70-92.
    18. Eggertsson, Gauti B. & Pugsley, Benjamin, 2006. "The mistake of 1931: A general equilibrium analysis," CFS Working Paper Series 2007/06, Center for Financial Studies (CFS).
    19. repec:eee:streco:v:45:y:2018:i:c:p:37-48 is not listed on IDEAS

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