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What ended the Great Depression? Re-evaluating the role of fiscal policy

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  • Nathan Perry
  • Matías Vernengo

Abstract

Conventional wisdom contends that fiscal policy was of secondary importance for the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilised gold inflows to increase the money supply. Often this is shown by measuring the fiscal multipliers and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.

Suggested Citation

  • Nathan Perry & Matías Vernengo, 2014. "What ended the Great Depression? Re-evaluating the role of fiscal policy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(2), pages 349-367.
    • Handle: RePEc:oup:cambje:v:38:y:2014:i:2:p:349-367.
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    File URL: http://hdl.handle.net/10.1093/cje/bet035
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    Cited by:

    1. Constantinos Alexiou & Joseph G. Nellis, 2017. "Cyclical Multiplier and Zero Low Bound Effects of Government Expenditure on Economic Growth: Evidence for Greece," Australian Economic Papers, Wiley Blackwell, vol. 56(2), pages 119-133, June.
    2. Brown, Donal & Brisbois, Marie-Claire & Lacey-Barnacle, Max & Foxon, Tim & Copeland, Claire & Mininni, Giulia, 2023. "The Green New Deal: Historical insights and local prospects in the United Kingdom (UK)," Ecological Economics, Elsevier, vol. 205(C).
    3. Barry Eichengreen, 2016. "The Great Depression in a Modern Mirror," De Economist, Springer, vol. 164(1), pages 1-17, March.
    4. António Afonso & Eduardo de Sá Fortes Leitao Rodrigues, 2022. "Is Public Investment in Construction and in R&D, Growth Enhancing? A PVAR Approach," CESifo Working Paper Series 10048, CESifo.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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