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"Liquidation" Cycles: Old-Fashioned Real Business Cycle Theory and the Great Depression

  • J. Bradford De Long

During the 1929-33 slide into the Great Depression, the Federal Reserve took almost no steps to keep the money supply or the price level stable. Instead, the Federal Reserve acted - disastrously - as if the gathering Great Depression could not be avoided, and was best endured. Such a liquidationist' theory of depressions was in fact common before the Keynesian Revolution, and was held and advanced by economists like Kayek and Schumpeter. This paper tries to reconstruct the logic of the liquidationist' view. It argues that the perspective was carefully thought out (although not adequate to the Depression), may hold some truth in other times and places, and could be the core of a more productive research program that currently popular real' business cycle theories.

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File URL: http://www.nber.org/papers/w3546.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3546.

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Date of creation: Dec 1990
Date of revision:
Handle: RePEc:nbr:nberwo:3546
Note: ME
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  1. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
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