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The great demand depression

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  • Weder, Mark

Abstract

This paper entertains the notion that disturbances on the demand side play a central role in our understanding of the Great Depression. In fact, from Euler equation residuals we are able to identify a series of unusually large negative demand shocks that appeared to have hit the U. S. economy during the 1930s. This echoes the view originally promoted by Temin (1976). We apply these measured demand shocks to a dynamic general equilibrium model and find that size and sequence of shocks can generate a pattern of the model economy that is not unlike data. The model is able to account for the lion's share of the decline in economic activity and is able to exaggerate realistic persistence.

Suggested Citation

  • Weder, Mark, 2001. "The great demand depression," SFB 373 Discussion Papers 2001,53, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:200153
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    Cited by:

    1. Luca Pensieroso, 2007. "Real Business Cycle Models Of The Great Depression: A Critical Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 110-142, February.
    2. repec:bla:germec:v:7:y:2006:i::p:113-133 is not listed on IDEAS
    3. Yi Wen, 2005. "By force of demand: explaining international comovements and the saving-investment correlation puzzle," Working Papers 2005-043, Federal Reserve Bank of St. Louis.
    4. Mark Weder, 2010. "Economic Crisis and Economic Theory," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 7-12, September.
    5. Mark Weder, 2006. "Some Observations on the Great Depression in Germany," German Economic Review, Verein für Socialpolitik, vol. 7(1), pages 113-133, February.
    6. Christian A. Belabed, 2016. "Inequality and the New Deal," IMK Working Paper 166-2016, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Wen, Yi, 2006. "Demand shocks and economic fluctuations," Economics Letters, Elsevier, vol. 90(3), pages 378-383, March.
    8. Wen, Yi, 2007. "By force of demand: Explaining international comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 1-23, January.
    9. Mark Weder, 2006. "The Role Of Preference Shocks And Capital Utilization In The Great Depression," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1247-1268, November.

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    More about this item

    Keywords

    Great Depression; Dynamic General Equilibrium; Demand Shocks;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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