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Learning the Hard Way: Expectations and the U.S. Great Depression

Author

Listed:
  • Pablo Aguilar

    (Bank of Spain and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Luca Pensieroso

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

We introduce adaptive learning – a parsimonious, convenient way to model uncertainty – in a dynamic general equilibrium model of the U.S. Great Depression. We show that even the smallest departure from rational expectations increases significantly the data mimicking ability of the model, in particular for what concerns the lack of recovery in detrended GDP after 1933. We conclude that in the case of big, traumatic events like the Great Depression, uncertainty is particularly unfavourable to the recovery phase.

Suggested Citation

  • Pablo Aguilar & Luca Pensieroso, 2022. "Learning the Hard Way: Expectations and the U.S. Great Depression," LIDAM Discussion Papers IRES 2022004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2022004
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    File URL: https://sites.uclouvain.be/econ/DP/IRES/2022004.pdf
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    References listed on IDEAS

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    Cited by:

    1. Luca Pensieroso & Romain Restout, 2021. "The Gold Standard and the International Dimension of the Great Depression," Working Papers of BETA 2021-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Cardi, Olivier & Restout, Romain, 2023. "Sectoral fiscal multipliers and technology in open economy," Journal of International Economics, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    Learning; Great Depression; Dynamic general equilibrium; Bounded rationality;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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