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Tariffs and the Great Depression revisited

Author

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  • Mario J. Crucini
  • James A. Kahn

Abstract

Drawing on recent business cycle research on the Great Depression, we return to an argument we advanced in a 1996 article in the Journal of Monetary conomics - the argument that features of the Hawley-Smoot tariffs could have done more to decrease economic activity than is customarily believed, though not enough to account for the severe decline of the early 1930s. Here we reformulate our argument in a business cycle accounting framework that apportions fluctuations between three types of "wedges": (productive) inefficiency, the consumption-leisure margin, and intertemporal inefficiency. Tariff increases in our model correspond primarily to productive inefficiency in a prototype one-sector model. Moreover, the wedge implied by tariffs during the Depression correlates well with the overall measure of productive inefficiency. Our model fails to produce a labor wedge of any onsequence-persuasive evidence that factors other than tariffs also contributed significantly to the severity of the Depression.

Suggested Citation

  • Mario J. Crucini & James A. Kahn, 2003. "Tariffs and the Great Depression revisited," Staff Reports 172, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:172
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    References listed on IDEAS

    as
    1. Crucini, Mario J. & Kahn, James, 1996. "Tariffs and aggregate economic activity: Lessons from the Great Depression," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 427-467, December.
    2. Fabrizio Perri & Vincenzo Quadrini, 2002. "The Great Depression in Italy: Trade Restrictions and Real Wage Rigidities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 128-151, January.
    3. 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.
    4. McDonald, Judith A. & O'Brien, Anthony Patrick & Callahan, Colleen M., 1997. "Trade Wars: Canada's Reaction to the Smoot-Hawley Tariff," The Journal of Economic History, Cambridge University Press, vol. 57(04), pages 802-826, December.
    5. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, January.
    6. Irwin, Douglas A. & Kroszner, Randall S., 1996. "Log-rolling and economic interests in the passage of the Smoot-Hawley tariff," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 173-200, December.
    7. Lee E. Ohanian, 2002. "Why did productivity fall so much during the Great Depression?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
    8. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 223-250, January.
    9. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-888, September.
    10. Barry Eichengreen, 1986. "The Political Economy of the Smoot-Hawley Tariff," NBER Working Papers 2001, National Bureau of Economic Research, Inc.
    11. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    12. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    13. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
    14. Casey B. Mulligan, 2002. "A Dual Method of Empirically Evaluating Dynamic Competitive Equilibrium Models with Market Distortions, Applied to the Great Depression & World War II," NBER Working Papers 8775, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Roman Sustek, 2011. "Monetary Business Cycle Accounting," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 592-612, October.
    2. Naoussi, Claude Francis & Tripier, Fabien, 2013. "Trend shocks and economic development," Journal of Development Economics, Elsevier, vol. 103(C), pages 29-42.
    3. Bridji, Slim, 2013. "The French Great Depression: A business cycle accounting analysis," Explorations in Economic History, Elsevier, vol. 50(3), pages 427-445.

    More about this item

    Keywords

    Depressions ; Tariff;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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