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The Great Crash and the Onset of the Great Depression

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  • Christina D. Romer

Abstract

This paper argues that the collapse of stock prices in October 1929 generated temporary uncertainty about future income which caused consumers to forego purchases of durable and semidurable goods in late 1929 and much of 1930. Evidence that the stock market crash generated uncertainty is provided by the decline in confidence expressed by contemporary forecasters. Evidence that this uncertainty affected consumer behavior is provided by the fact that spending on consumer durables and semidurables declined immediately following the Great Crash and by the fact that there is a negative historical relationship between stock market variability and the production of consumer durables in the prewar era.

Suggested Citation

  • Christina D. Romer, 1988. "The Great Crash and the Onset of the Great Depression," NBER Working Papers 2639, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2639
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    File URL: http://www.nber.org/papers/w2639.pdf
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    References listed on IDEAS

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    1. Moses Abramovitz, 1950. "Total Inventories during Business Cycles," NBER Chapters,in: Inventories and Business Cycles, with Special Reference to Manufacturer's Inventories, pages 76-108 National Bureau of Economic Research, Inc.
    2. Gramlich, Edward M, 1983. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 155-173, May.
    3. Robert E. Lipsey & Doris Preston, 1966. "Source Book of Statistics Relating to Construction," NBER Books, National Bureau of Economic Research, Inc, number lips66-1.
    4. Dominguez, Kathryn M & Fair, Ray C & Shapiro, Matthew D, 1988. "Forecasting the Depression: Harvard versus Yale," American Economic Review, American Economic Association, vol. 78(4), pages 595-612, September.
    5. Mayer, Thomas, 1978. "Consumption in the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 139-145, February.
    6. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 38(04), pages 918-937, December.
    7. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
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    Cited by:

    1. Frederic S. Mishkin, 1991. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Chapters,in: Financial Markets and Financial Crises, pages 69-108 National Bureau of Economic Research, Inc.

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