IDEAS home Printed from https://ideas.repec.org/p/een/camaaa/2021-06.html
   My bibliography  Save this paper

American business cycles 1889-1913: An accounting approach

Author

Listed:
  • Dou Jiang
  • Mark Weder

Abstract

This paper quantitatively investigates the Depression of the 1890s and the 1907 recession in the United States. Business Cycle Accounting decomposes economic fluctuations into their contributing factors. The results suggest that both the 1890s and the 1907 recessions were primarily caused by factors that affect the efficiency wedge, i.e. slumps in the economy’s factor productivity. Distortions to the labor wedge played a less important role. Models with financial market frictions that translate into the efficiency wedge are the most promising candidates for explaining the recessionary episodes.

Suggested Citation

  • Dou Jiang & Mark Weder, 2021. "American business cycles 1889-1913: An accounting approach," CAMA Working Papers 2021-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-06
    as

    Download full text from publisher

    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-01/6_2021_jiang_weder_0.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Moen, Jon R. & Tallman, Ellis W., 2000. "Clearinghouse Membership and Deposit Contraction during the Panic of 1907," The Journal of Economic History, Cambridge University Press, vol. 60(1), pages 145-163, March.
    2. Nason, James M. & Tallman, Ellis W., 2015. "Business Cycles And Financial Crises: The Roles Of Credit Supply And Demand Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 19(4), pages 836-882, June.
    3. Alex Klein & Keisuke Otsu, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," Studies in Economics 1317, School of Economics, University of Kent.
    4. Harrison, Sharon & Weder, Mark, 2009. "Technological change and the roaring twenties: A neoclassical perspective," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 363-375, September.
    5. Robert E. Gallman, 1966. "Gross National Product in the United States, 1834–1909," NBER Chapters, in: Output, Employment, and Productivity in the United States after 1800, pages 3-90, National Bureau of Economic Research, Inc.
    6. Hanes, Christopher, 1993. "The Development of Nominal Wage Rigidity in the Late 19th Century," American Economic Review, American Economic Association, vol. 83(4), pages 732-756, September.
    7. Timothy J. Kehoe & Edward C. Prescott, 2008. "Using the general equilibrium growth model to study great depressions: a reply to Temin," Staff Report 418, Federal Reserve Bank of Minneapolis.
    8. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    9. Gorton, Gary, 1988. "Banking Panics and Business Cycles," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 751-781, December.
    10. Romer, Christina D, 1989. "The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 1-37, February.
    11. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
    12. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    13. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2003. "Accounting for the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 27(Spr), pages 2-8.
    14. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    15. Jordi Galí & Mark Gertler & J. David López-Salido, 2007. "Markups, Gaps, and the Welfare Costs of Business Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 44-59, November.
    16. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 1-28, February.
    17. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital Utilization and Returns to Scale," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 67-124, National Bureau of Economic Research, Inc.
    18. Ellis W. Tallman & Jon R. Moen, 2018. "The transmission of the financial crisis in 1907: an empirical investigation," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 12(2), pages 277-312, May.
    19. Brinca, P. & Chari, V.V. & Kehoe, P.J. & McGrattan, E., 2016. "Accounting for Business Cycles," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1013-1063, Elsevier.
    20. Field, Alexander J., 2010. "The Procyclical Behavior of Total Factor Productivity in the United States, 1890–2004," The Journal of Economic History, Cambridge University Press, vol. 70(2), pages 326-350, June.
    21. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    22. Gorton, Gary B. & Tallman, Ellis W., 2018. "Fighting Financial Crises," University of Chicago Press Economics Books, University of Chicago Press, number 9780226479514, October.
    23. Loukas Karabarbounis, 2014. "The Labor Wedge: MRS vs. MPN," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 206-223, April.
    24. Hoffmann, Charles, 1956. "The Depression of the Nineties," The Journal of Economic History, Cambridge University Press, vol. 16(2), pages 137-164, June.
    25. Bridji, Slim, 2013. "The French Great Depression: A business cycle accounting analysis," Explorations in Economic History, Elsevier, vol. 50(3), pages 427-445.
    26. Peter Temin, 1998. "Causes of American business cycles: an essay in economic historiography," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 37-64.
    27. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression (technical appendix)," Working Papers 619, Federal Reserve Bank of Minneapolis.
    28. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
    29. Klein, Alexander & Otsuy, Keisuke, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," CAGE Online Working Paper Series 147, Competitive Advantage in the Global Economy (CAGE).
    30. Harrison, Sharon & Weder, Mark, 2009. "Technological change and the roaring twenties: A neoclassical perspective," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 363-375, September.
    31. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    32. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1.
    33. Sundstrom, William A., 1992. "Rigid wages or small equilibrium adjustments? Evidence from the contraction of 1893," Explorations in Economic History, Elsevier, vol. 29(4), pages 430-455, October.
    34. Francisco J. Buera & Benjamin Moll, 2015. "Aggregate Implications of a Credit Crunch: The Importance of Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 1-42, July.
    35. Cooley, Thomas F. & Ohanian, Lee E., 1991. "The cyclical behavior of prices," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 25-60, August.
    36. Robert E. Hall, 2013. "Financial Frictions," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 155-163, June.
    37. Mark Weder, 2006. "The Role Of Preference Shocks And Capital Utilization In The Great Depression," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1247-1268, November.
    38. Bresnahan, Timothy F. & Raff, Daniel M. G., 1991. "Intra-Industry Heterogeneity and the Great Depression: The American Motor Vehicles Industry, 1929–1935," The Journal of Economic History, Cambridge University Press, vol. 51(2), pages 317-331, June.
    39. Luca Pensieroso, 2011. "The Great Depression in Belgium from a Neoclassical Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 389-402, Arpil.
    40. Dorothy S. Brady, 1966. "Output, Employment, and Productivity in the United States after 1800," NBER Books, National Bureau of Economic Research, Inc, number brad66-1.
    41. Wicker,Elmus, 2000. "Banking Panics of the Gilded Age," Cambridge Books, Cambridge University Press, number 9780521770231, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Charles W. Calomiris & Christopher Hanes, 1994. "Historical Macroeconomics and American Macroeconomic History," NBER Working Papers 4935, National Bureau of Economic Research, Inc.
    2. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2043-2130, Elsevier.
    3. Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2003. "The Great Depression and the Friedman-Schwartz hypothesis," Proceedings, Federal Reserve Bank of Cleveland, pages 1119-1215.
    4. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    5. Jiang, Dou, 2023. "Output drops in ASEAN-5 countries: A business cycle accounting perspective," Economic Modelling, Elsevier, vol. 126(C).
    6. Pedro Brinca & João Ricardo Costa Filho & Francesca Loria, 2024. "Business cycle accounting: What have we learned so far?," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1276-1316, September.
    7. Mark Weder, 2010. "Economic Crisis and Economic Theory," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 7-12, September.
    8. Ellis W. Tallman, 2012. "The Panic of 1907," Working Papers (Old Series) 1228, Federal Reserve Bank of Cleveland.
    9. Bridji, Slim, 2013. "The French Great Depression: A business cycle accounting analysis," Explorations in Economic History, Elsevier, vol. 50(3), pages 427-445.
    10. Cooper, Russell & Ejarque, Joao, 1995. "Financial intermediation and the Great Depression: a multiple equilibrium interpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 285-323, December.
    11. Shirai, Daichi, 2016. "Persistence and Amplification of Financial Frictions," MPRA Paper 72187, University Library of Munich, Germany.
    12. Slim BRIDJI, 2007. "Accounting for the French Great Depression," 2007 Meeting Papers 461, Society for Economic Dynamics.
    13. Luca Pensieroso, 2011. "Real business cycle models of the Great Depression," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 5(2), pages 101-119, June.
    14. Fernando del Río & Francisco‐Xavier Lores, 2023. "Accounting for the role of investment frictions in recessions," Economica, London School of Economics and Political Science, vol. 90(360), pages 1089-1118, October.
    15. Francisco J. Buera & Juan Pablo Nicolini, 2020. "Liquidity Traps and Monetary Policy: Managing a Credit Crunch," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 110-138, July.
    16. repec:hum:wpaper:sfb649dp2007-006 is not listed on IDEAS
    17. Fernandes, Daniel, 2022. "Business Cycle Accounting for the COVID-19 Recession," MPRA Paper 111577, University Library of Munich, Germany.
    18. Harold L. Cole & Lee E. Ohanian, 2001. "Re-Examining the Contributions of Money and Banking Shocks to the US Great Depression," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 183-260, National Bureau of Economic Research, Inc.
    19. Kupiec, Paul H. & Ramirez, Carlos D., 2013. "Bank failures and the cost of systemic risk: Evidence from 1900 to 1930," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 285-307.
    20. Clymo, AJ, 2017. "Heterogeneous Firms, Wages, and the Effects of Financial Crises," Economics Discussion Papers 20572, University of Essex, Department of Economics.
    21. Petrosky-Nadeau, Nicolas, 2013. "TFP during a credit crunch," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1150-1178.

    More about this item

    Keywords

    Business cycles; Depression of the 1890s; Recession of 1907;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2021-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cama Admin (email available below). General contact details of provider: https://edirc.repec.org/data/asanuau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.