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Did sunspot forces cause the Great Depression?

  • Harrison, Sharon G.
  • Weder, Mark

We apply a dynamic general equilibrium model to the period of the Great Depression. In particular, we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises. In other words, agents' self-fulfilling expectations can serve as a primary impulse behind fluctuations. We find that the model, driven only by these measured sunspot shocks, can explain well the entire Depression era; that is, the decline from 1929-32, the subsequent slow recovery and the recession that occurred in 1937-38.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 53 (2006)
Issue (Month): 7 (October)
Pages: 1327-1339

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Handle: RePEc:eee:moneco:v:53:y:2006:i:7:p:1327-1339
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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