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The Great Demand Depression

  • Weder, Mark

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 I am able to identify a series of unusually large negative demand shocks that appeared to have hit the US economy during the 1930s. I 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3067.

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Date of creation: Nov 2001
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Handle: RePEc:cpr:ceprdp:3067
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  17. Bordo, Michael D. & Evans, Charles L., 1995. "Labor productivity during the Great Depression," Economics Letters, Elsevier, vol. 47(1), pages 41-45, January.
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  19. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24.
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  25. Benhabib, Jess & Wen, Yi, 2001. "Indeterminacy, Aggregate Demand, and the Real Business Cycle," Working Papers 01-09r, Cornell University, Center for Analytic Economics.
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