The Macroeconomics of the Great Depression: A Comparative ApproachRecently, research on the causes of the Great Depression has shifted from a heavy emphasis on events in the United States to a broader, more comparative approach that examines the interwar experiences of many countries simultaneously. In this lecture I survey the current state of our knowledge about the Depression from a comparative perspective. On the aggregate demand side of the economy, comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the Depression; an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one Nash equilibrium to another. On the aggregate supply side, comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects. Still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment. |
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absolute t-value aggregate demand aggregate supply Average banking panics BASE/RES RES/GOLD PGOLD behavior Belgium Bernanke and Carey Bernanke and James central banks choice of exchange-rate commercial bank countries leaving gold currency debt debt-deflation deflation Depression devaluation domestic dummies economic Eichengreen and Sachs employment estimated coefficients evidence ex-post real interest exchange-rate crises exchange-rate regime factors France Friedman and Schwartz Gold Bloc countries gold reserves gold standard membership gold-standard countries important inside money stocks international reserves interwar period left gold log-change M1 M1/BASE BASE/RES M1/BASE BASE/RES RES/GOLD macro variables macroeconomic Mark Gertler monetary base monetary contraction monetary shocks Money and notes money multiplier money supply money-gold ratio Mundell-Fleming model NBER Working Papers Nominal interest rate ONGOLD output percentage points PGOLD QGOLD 1929 Policy price index price levels real interest rates real share prices real wages regression relative remaining on gold RES/GOLD PGOLD QGOLD sample Spain Table 3 line values wholesale price