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The Estimation of Prewar GNP Volatility, 1869-1938

  • Nathan S. Balke
  • Robert J. Gordon

New evidence is provided to assess the recent controversy regarding the volatility of real economic activity before 1929 relative to the period since World War II. Some recent work claims that the longstanding stylized fact of greater prewar volatility is "spurious". In contrast, this paper reconfirms the greater amplitude of business fluctuations prior to the Great Depression. The basic technique is the regression method, which estimates equations for real GNP during 1909-38, with one or more explanatory variables for components of GNP, and then uses the estimated coefficients to "backcast" real GNP or the period 1869-1908. The paper contains an extensive examination of the sensitivity of these regression indexes to alternative dependent variables, sample periods, detrending methods, and the inclusion of alternative explanatory variables. Particular attention is paid to the conflicting evidence regarding the amplitude of cycles in construction activity between 1870 and 1890. The resulting prewar/postwar volatility ratios, for 1869-1928 as compared to 1950-1980, range from 1.43 to 2.16. The paper concludes by suggesting that this range of volatility ratios is more likely to understate than overstate the prewar/postwar volatility ratio.

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File URL: http://www.nber.org/papers/w1999.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1999.

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Date of creation: Aug 1986
Date of revision:
Publication status: Published as "The Estimation of Prewar Gross National Product: Methodologyand New Evidence", JPE, Vol. 97, no. 1 (1989): 38-92.
Handle: RePEc:nbr:nberwo:1999
Note: EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Robert J. Gordon & James A. Wilcox, 1978. "Monetarist Interpretations of the Great Depression: An Evaluation and Critique," NBER Working Papers 0300, National Bureau of Economic Research, Inc.
  2. Moses Abramovitz, 1964. "Evidences of Long Swings in Aggregate Construction Since the Civil War," NBER Books, National Bureau of Economic Research, Inc, number abra64-1, December.
  3. Simon Kuznets & Elizabeth Jenks, 1961. "Capital in the American Economy: Its Formation and Financing," NBER Books, National Bureau of Economic Research, Inc, number kuzn61-1, December.
  4. John B. Taylor, 1984. "Improvements in Macroeconomic Stability: The Role of Wages and Prices," NBER Working Papers 1491, National Bureau of Economic Research, Inc.
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