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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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3267.

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Date of creation: Mar 2002
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Handle: RePEc:cpr:ceprdp:3267
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