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The Great Crash and the Onset of the Great Depression

  • Romer, Christina D

This paper argues that the collapse of stock prices in October 1929 generated temporary uncertainty about future income, which led consumers to forgo purchases of durable goods. That the Great Crash generated uncertainty is evidenced by the decline in surety expressed by contemporary forecasters. That this uncertainty affected consumer behavior is shown by the fact that spending on consumer durables declined drastically in late 1929, while spending on perishable goods rose slightly. This effect is confirmed by the fact that there is a significant negative relationship between stock market variability and the production of consumer durables in the prewar era. Copyright 1990, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 105 (1990)
Issue (Month): 3 (August)
Pages: 597-624

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Handle: RePEc:tpr:qjecon:v:105:y:1990:i:3:p:597-624
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  1. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
  2. Robert E. Lipsey & Doris Preston, 1966. "Source Book of Statistics Relating to Construction," NBER Books, National Bureau of Economic Research, Inc, number lips66-1, December.
  3. Gramlich, Edward M, 1983. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 155-73, May.
  4. Mayer, Thomas, 1978. "Consumption in the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 139-45, February.
  5. Ray C. Fair & Matthew D. Shapiro & Kathryn M. Dominguez, 1986. "Forecasting the Depression: Harvard Versus Yale," NBER Working Papers 2095, National Bureau of Economic Research, Inc.
  6. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 38(04), pages 918-937, December.
  7. Moses Abramovitz, 1950. "Total Inventories during Business Cycles," NBER Chapters, in: Inventories and Business Cycles, with Special Reference to Manufacturer's Inventories, pages 76-108 National Bureau of Economic Research, Inc.
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