world war i and the postwar depression a reinterpretation based on alternative estimates of gnp abstract this paper examines the official commerce department estimates of gross national product for 1909 1928 and suggests that they are far inferior to the less commonly used kendrick gnp estimates the paper then derives a revised version of the kendrick series that alters significantly the representation of annual movements in gnp before 1919 this endorsement of a revised kendrick gnp series in place of the official commerce department estimates before 1929 suggests that aggregate demand movements had much less effect on real output during world war i and the depression of 1921 than is commonly believed

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

what ended the great depression re evaluating the role of fiscal policy conventional wisdom contends that fiscal policy was of secondary importance for the economic recovery in the 1930s the recovery is then connected to monetary policy that allowed non sterilised gold inflows to increase the money supply often this is shown by measuring the fiscal multipliers and demonstrating that they were relatively small this paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy the rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of new deal policies for the recovery

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

was the deflation during the great depression anticipated evidence from the commodity futures market futures prices were well above spot prices for most commodities during most of the great depression evidently the spectacular declines in agricultural prices caught many people by surprise based on the historical correlations between commodity prices and consumer prices commodity markets anticipated stable consumer prices during the first year of the great depression the dramatic drop in nominal treasury bill yields thus should be read as a drop in ex ante real rates later in the great depression markets anticipated deflation but not as severe as actually occurred copyright 1992 by american economic association

how successful was the new deal the microeconomic impact of new deal spending and lending policies in the 1930s the new deal during the 1930s was arguably the largest peace time expansion in federal government activity in american history until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of new deal programs over the past decade scholars have developed new panel databases for counties cities and states and then used panel data methods on them to examine the impact of new deal spending and lending policies for the major new deal programs in most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy many of the studies also use instrumental variable methods to control for endogeneity the studies find that public works and relief spending had state income multipliers of around one increased consumption activity attracted internal migration reduced crime rates and lowered several types of mortality the farm programs typically aided large farm owners but eliminated opportunities for share croppers tenants and farm workers the home owners loan corporation s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers the reconstruction finance corporation s loans to banks and railroads appear to have had little positive impact although the banks were aided when the rfc took ownership stakes

why males earn more location and training of brazilian schoolteachers the persistence of a substantial differential between the wages of men and women is a continuing source of interest to economists the fact that much of the differential is not easily explained is perplexing to those who believe that labor markets function reasonably well there is a large literature concerned with explaining what appear to be other anomalies of labor markets in poor countries dealing with geographical segmentation the formal versus the informal sector and the public versus the private sector 1 little however has been written on female employment and on male female wage differentials in poor countries in this analysis we examine the income differential between male and female schoolteachers in brazil using information on their income hours of work educational background and other characteristics from a 1 sample of the 1970 brazil census the issues arising from use of income rather than wage are discussed below data on wage rates were not available the income differential is substantial the mean income of female teachers in brazil is less than one half the mean for men we are particularly concerned with isolating the contribution to the differential of two factors often ignored in similar studies the locational distribution of male and female teachers and differences between males and females in job position due to differences in the types of job training they have pursued both factors appear to favor males location because males are more highly concentrated in highincome regions and because interregional income differences in brazil are substantial possibly reflecting geographical segmentation and job position because males are much more likely to hold secondary school positions rather than primary school positions and there is a substantial income premium associated with secondary school positions by restricting our study to one occupation schoolteachers for whom we have extensive education data we can study carefully the effects of

labour markets social justice and economic efficiency in conventional economic theory a trade off supposedly exists between social justice and economic efficiency in reality market and other economic institutions are dominated by power relations so that the sponsorship of social justice is a productive factor neo liberal economic policies by lifting the constraints on the exercise of unequal power increased injustice and triggered a downward economic and social spiral reversing this requires a revolution in economic theory and policy focused on full employment the working of labour markets the organisation of work and household organisation social provision and self sufficiency in conventional economic theory the initial resource endowments of individuals are taken as given and although these may be unequal they are essentially external to the market labour markets are assumed to be more or less competitive and within them real wages reflect the quality of workers resource endowments mainly human capital and their personal efficiency and energy that these result in a wide dispersion of labour market rewards some of which may be insufficient to sustain a reasonable standard of life is a demonstration it is argued of how widely dispersed are individual resource endowments and capabilities hirsch and addison 1986 from this perspective any idea of social justice designed to reduce income inequalities risks damaging incentives and lowering overall economic well being this is the basis of okun s 1975 thesis that there exists an inverse trade off between social equality and economic efficiency that greater social income equality can only be purchased at the cost of lowering economic efficiency the alternative perspective explored in this special issue recognises the central import ance of relative power in determining outcomes this focuses attention on the external and internal forces structuring markets and how these differentially affect the incomes and opportunities of individuals from this perspective social justice requires the removal of the obstacles that inhibit individuals and groups from developing their potential and from deploying their resources to full advantage thus contrary to the orthodox view increasing

the case for open market purchases in a liquidity trap prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short term nominal interest rate renders open market operations ineffective for achieving macroeconomic stabilization goals we show that even were this the case there remains a powerful argument for large scale open market operations as a fiscal policy tool as we also demonstrate however this same reasoning implies that open market operations will be beneficial for stabilization as well even when the economy is expected to remain mired in a liquidity trap for some time thus the microeconomic fiscal benefits of open market operations in a liquidity trap go hand in hand with standard macroeconomic objectives motivated by japan s recent economic experience we use a dynamic general equilibrium model to assess the welfare impact of open market operations for an economy in japan s predicament we argue japan can achieve a substantial welfare improvement through large open market purchases of domestic government debt

economic policy and the great depression in a small open economy we use a standard new keynesian model of a small open economy extended to include a government sector to investigate the great depression in australia a calibrated model with a fixed exchange rate regime similar to the gold standard does well in replicating the dynamics of output during the interwar period we then ask to what extent shocks to the economy would have been moderated by adopting modern day policies we find that if policymakers had adopted a flexible exchange rate with a taylor rule policy that output fluctuations during the great depression would have been moderated by up to 25 changes in government fiscal policy would also have moderated output fluctuations but by a slightly smaller amount overall we find that improved policy could have reduced output fluctuations by almost 50

identifying fiscal policy in effectiveness from the differential counter cyclicality of government spending in the interwar period differences across decades in the counter cyclical stance of fiscal policy can identify whether the growth in government spending affects output growth and so speeds recovery from a recession we study government spending reaction functions from the 1920s and 1930s for twenty countries there are two main findings first surprisingly government spending was less counter cyclical in the 1930s than in the 1920s second the growth of government spending did not have a significant effect on output growth so that there is little evidence that this feature of fiscal policy played a stabilizing role in the interwar period resume identifier le caractere effectif ou non de la politique fiscale a partir de la contra cyclicite differentielle des depenses gouvernementales pendant l entre deux guerres des differences dans le degre de contra cyclicite de la politique budgetaire peuvent servir a identifier si la croissance des depenses publiques a un effet sur la croissance de l output et accelere ainsi la reprise de l activite suivant une recession nous etudions des fonctions de reaction des depenses publiques pour les annees 1920 et 1930 ce pour vingt pays il en ressort deux resultats principaux premierement et fait surprenant les depenses publiques etaient moins contra cycliques durant les annees 1930 que 1920 deuxiemement la croissance des depenses publiques n a pas eu d effet significatif sur la croissance de l output ce qui permet de douter que cet aspect de la politique budgetaire ait joue un role stabilisateur durant l entre guerre

the political economy of a divided ireland for a peace process in ireland to succeed it will require an active transition away from the underlying causes of conflict not just the partition of the country but the inequalities of opportunities and employment between the communities in northern ireland this requires the restructuring of existing unequal arrangements if this restructuring is not to be at the expense of the protestant community public intervention will be needed to ensure that opportunities for the protestant community can be developed alongside the necessary catching up of the previously disadvantaged community otherwise any type of future transition process risks grinding to a halt

the dire effects of the lack of monetary and fiscal coordination abstract if the government s willingness to stabilize debt is waning while the central bank is adamant about keeping inflation low the economy enters a vicious spiral of higher inflation monetary tightening recession and further debt accumulation the mere possibility of this conflict represents a drag on the economy a commitment to inflate away the debt accumulated during a large recession leads to welfare improvements and lower uncertainty by separating long run fiscal sustainability from the short run fiscal stimulus this strategy can be used to avoid the zero lower bound as a technical contribution we explain how to build shock specific policy rules

fiscal policy and economic recovery the case of the 1936 veterans bonus conventional wisdom has it that in the 1930s scal policy did not work because it was not tried this paper shows that scal policy though inadvertent was tried in 1936 and a variety of evidence suggests that it worked a decit nanced veterans bonus provided 3 2 million world war i veterans with cash and bond payments totaling 2 percent of gdp the typical veteran received a payment equal to annual per capita personal income this paper uses time series and cross sectional data to identify the eects of the bonus i exploit four sources of quantitative evidence a detailed household consumption survey cross state and cross city regressions aggregate time series and a previously unused american legion survey of veterans the evidence paints a consistent picture in which veterans quickly spent the majority of their bonus spending was concentrated on cars and housing in particular narrative accounts support these quantitative results a simple calculation suggests that the bonus added 2 5 to 3 percentage points to 1936 gdp growth

britain s industrial performance since 1960 underinvestment and relative decline this article argues first that britain s industrial performance since i960 has been relatively poor secondly that despite the views of crafts and others the deindustrialisation which has resulted from this relatively poor industrial performance is a serious problem for the whole economy not just for the industrial sector itself thirdly that neither the specific problem of deindustrialisation nor the consequent general problem of continued relative economic decline were solved in the 1980s and fourthly that the key reason why british industry has been doing relatively poorly has been underinvestment in manufacturing this underinvestment has been allowed to persist by the lack of any strong modernising forces within british society with the trade union movement having been either too weak or too defensive and with government policy at best being rather ineffectual and at worst positively harmful the reasons for this policy failure lie in britain s economic history and in the resulting distorted nature of both the economy and society this fundamental problem of a lack of any strong modernising force has if anything been exacerbated since 1979

quantitative easing in the 1930s during the 1934 39 recovery from the u s great depression overnight interest rates were usually at a lower bound meanwhile american monetary authorities followed policies related to today s debates on quantitative easing they tried to stabilize yields on treasury bonds with open market operations they created rapid growth in high powered money and they allowed transitory factors to affect high powered money effects of these policies on bond yields reveal a portfolio effect of short duration asset supply on term premiums this portfolio effect helps explain why high powered money growth was associated with recovery of real activity over 1934 39

discretionary monetary policy and the zero lower bound on nominal interest rates abstract ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in new keynesian models a stochastic forward looking model with an occasionally binding lower bound calibrated to the u s economy suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy the fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound the welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the phillips curve these results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment

transitions in the german labor market structure and crisis abstract since the so called hartz iv reforms around 2005 and during the global crisis of 2008 2009 the german labor market featured mainly declining unemployment rates we develop a search and matching model with heterogeneous skills to explore the role of structural and cyclical policies for this performance calibrating unemployment benefits to approximate legislation before and after the reforms we find a large reduction in unemployment and its duration with the transition concluding after about three years during the crisis the extended use of short time labor subsidies that prevent jobs from being destroyed is likely to have prevented strong increases in unemployment

great expectations and the end of the depression what ended the great depression in the united states this paper suggests that the recovery was driven by a shift in expectations this shift was triggered by president franklin delano roosevelt s fdr policy actions on the monetary policy side roosevelt abolished the gold standard and announced an explicit policy objective of inflating the price level to pre depression levels on the fiscal policy side roosevelt expanded real and deficit spending which helped make his policy objective credible the key to the recovery was the successful management of expecta tions about future policy roosevelt s rise to power is modeled as a policy regime change as in thomas sargent 1983 and peter temin and barry wigmore 1990 this paper formalizes temin and wigmore s argu ment in a repeated game setting using a dynamic stochastic general equilibrium dsge model and argues that the regime change can account for the recovery in the model a regime change means the elimination of certain policy dogmas that constrain the actions of the government the regime change generates an endogenous shift in expectations due to a coordination of mon etary and fiscal policy this coordination ended the great depression by engineering a shift in expectations from contractionary i e the private sector expected future economic contrac tion and deflation to expansionary i e the public expected future economic expansion and inflation the expectation of higher future inflation lowered real interest rates thus stimulating demand while the expectation of higher future income stimulated demand by raising permanent income

time consistent public expenditures in this paper we study the optimal choice of public expenditures when there is no way of committing to future policy and reputational mechanisms are not operative this amounts to conflning our attention to markov equilibria the environment is a neoclassical growth model where consumers derive utility from a public good this environment gives rise to a dynamic game between successive governments and the private sector and this game is made interesting by the presence of a state variable the capital stock we characterize equilibria in terms of an intertemporal flrst order condition a generalized euler equation gee for the government and we use this condition both to gain insight into the nature of the equilibrium and as a basis for computation the gee reveals how the government optimally trades ofi tax wedges over time it also allows us to discuss in what sense a current government may be strategically in uencing future governments in their taxation decisions for a calibrated economy we flnd that when the tax base available to the government is capital income an inelastic source of funds at any moment in time the government still refrains from taxing at high rates in order to smooth distortions over time as a result the economy is far from the mix of public and private goods that would be optimal in a static context in return the savings distortion is not very severe and the capital stock is quite high

on measuring the effects of fiscal policy in recessions we do not have a good measure of the effects of fiscal policy in a recession because the methods that we use to estimate the effects of fiscal policy both those using the observed outcomes following different policies in aggregate data and those studying counterfactuals in fitted model economies almost entirely ignore the state of the economy and estimate the government multiplier which is presumably a weighted average of the one we care about the multiplier in a recession and one we care less about the multiplier in an expansion notable exceptions to this general claim sug gest this difference is potentially large our lack of knowledge stems significantly from the focus on linear dynamics vector autoregressions and linearized or close to linear dynamic stochastic general equilibrium dsge models our lack of knowledge also reflects a lack of data deep recessions are few and nonlinearities hard to measure the lack of statistical power in the estimation of nonlinear models using aggregate data can be addressed by exploiting estimates of partial equilibrium responses in disaggregated data microeconomic estimates of the partial equilibrium causal effects of a policy can discipline the causal channels inherent in any dsge model of the general equilibrium effects of policy microeconomic studies can also provide measures of the dependence of the effects of a policy on the states of different agents which is a key component of the dependence of the general equilibrium effects of fiscal policy on the state of the

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

unstable inflation targets this paper studies long run inflation targets and stability in an imperfect information environment when central banks set an inflation target that is not fully communicated agents draw inferences about inflation from recent data and remain alert to structural change by forming expectations from a forecasting model that is estimated via discounted least squares inflation targets can lead agents beliefs to depart from rational expectations through two channels first implementing a higher inflation target can lead to overshooting second there can be nearly self fulfilling inflation disinflation or deflation that arises as an endogenous response to shocks policy implications for implementing a higher target without deanchoring expectations are discussed

public inputs and child schooling in brazil household data from a one percent sample of the 1970 brazilian census are used to analyze the effect of public inputs i e the supply of schooling on children s school attainment in brazil the household data are combined with measures of school availability and quality derived directly from the same census data the measures are based on the number and education of schoolteachers in each of 169 different areas of the country elasticities of demand with respect to these public inputs are estimated these elasticities are high in both rural and urban areas in urban areas the positive effect of public inputs is greater for children from households with poorer and less educated parents in rural areas the positive effect of public inputs is greater if anything for children from households that are relatively better off at least compared to other rural households

cross of euros the eurozone currently confronts severe short run macroeconomic adjustment problems and a deficient institutional architecture that has to be reformed in the longer run europe s efforts at economic and monetary union are historically unprecedented however the gold standard provides lessons regarding what will and won t work macroeconomically and politically in the short run while us history provides long run lessons regarding appropriate institutional structures the latter also suggests that institutional reform only happens at times of great crisis and that it cannot be taken for granted the eurozone s leaders may therefore ultimately have to take heed of the lessons of history regarding currency union breakups

from farashia to military uniform male female wage differentials in libya introduction discrimination against females has been the subject of hundreds of studies in the west especially in the united states there are only a few studies of note conducted in the less developed world however although the methodology employed in estimating the earnings equations varies from study to study most studies follow a common method of decomposing the earnings differential into a part attributed to different endowments or the explained part and a residual or an unexplained part usually taken to measure discrimination a collection of papers edited by g psacharopoulos and z tzannatos brings to attention the analysis of 15 different latin american countries the unexplained part of the differential in these studies ranges from 22 9 in colombia to 95 in venezuela other studies include that of l christofides and p pashardes who attribute 60 of the male female earnings gap in cyprus to the explained part while b cohen and w house s explained part is 63 for khartoum sudan and m schafgans s is 27 for malaysia in the case of taiwan only 16 of the wage differential is attributed to discrimination while for guinea this percentage is 75 for the public sector and 55 for the self employed sector in three other african countries a significant proportion of the wage gap is unexplained but due to the use of a different methodology it is not strictly comparable with the other studies there are a few other studies in the developing world cited in the work by g r arabsheibani the arab world however has been neglected almost com

monetary policy and the lost decade lessons from japan i investigate how monetary policy can avoid a deflationary slump when policy rates are near zero by studying interest rate policy during japan s lost decade estimation results suggest that the bank of japan s interest rate policy fits a conventional reaction function with an inflation target near 1 the disapointing economic performance thus seems primarily due to adverse economic shocks rather than extraordinary policy errors also counterfactual policy simulations suggest that simply raising the inflation target would not have substantially improved performance however price level targeting or combining a higher inflation target with an aggressive output response would have achieved superior stabilization results

lessons from the 1930s great depression this paper provides a survey of the great depression comprising both a narrative account and a detailed review of the empirical evidence focusing especially on the experience of the united states we examine the reasons for and flawed resolution of the american banking crisis as well as the conduct of fiscal and monetary policy we also consider the pivotal role of the gold standard in the international transmission of the slump and leaving gold as a route to recovery policy lessons for today from the great depression are discussed as are some implications for macroeconomics

aggregate stability and balanced budget rules it has been shown that under perfect competition and a cobb douglas production function a basic real business cycle model may exhibit indeterminacy and sunspot fluctuations when income tax rates are determined by a balanced budget rule bbr this paper introduces in an otherwise standard real business cycle model a more general and data coherent class of production functions namely a constant elasticity of substitution production function we show that the degree of substitutability between production factors is a key ingredient to understanding the de stabilizing properties of a bbr then we calibrate the model consistently with the empirical evidence that is we set the elasticity of substitution between labor and capital below unity we show that compared to the cobb douglas case the likelihood of indeterminacy under a bbr is greatly reduced in the u s the eu and the uk

female headed households poverty and the welfare of children in urban brazil this study describes female headed households and analyzes the determinants of poverty among these households and the consequences for children data are obtained from the brazilian pesquisa national por amostra de domicilios pnad for mostly 1984 and some other years historically brazil has always had a large proportion of female headed households in part due to the plantation culture and the need for male labor migration to plantations this study focuses on households in recife sao paulo and porto alegre these metro areas reflect a variety of socioeconomic conditions two alternative definitions of headship are compared and caution is urged in using too narrow a concept of headship in situations such as in this study where households depend upon more than one income earner income levels varied across the three regions mean income in sao paulo and porto alegre was similar income in recife was much lower there were more female headed households per capita in recife the general trend was that the lower the relative income the higher the likelihood of being a female headed household female headed households with minors and moynihan type households had the greatest proportion in the lower income groups it is concluded that 1 female headships were heterogenous 2 the extent of poverty of female headed households varied by region and was the greatest in the northeast and 3 female headed households were poorer because females earned less than males lower female income was related to lower hours worked and the tendency of women to work in occupations that paid lower salaries or to hold low status occupations employers were faulted for failing to hire women for higher paying jobs or to pay salaries on par with male counterparts single mother headed households in urban areas were 3 4 of households but these households with children tended to be poor and were designated a vulnerable group not all female headed households were vulnerable particularly those in the south interventions should be targeted at children who are most at risk for poor school attendance at ages 10 14 years in poor female headed households children were worse off in recife where there was a stronger association between poverty and female headship only children in female headed households had decreased school attendance with increasing age the analysis of the poverty effect on children indicated different impacts in each metro area

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

the fiscal and distributional implications of job generation this article estimates the cost of a public investment led job creation programme for the united kingdom a programme creating an additional one million jobs at the current average wage would involve a net cost to the treasury dramatically lower than the gross cost 17 billion worth of spending would result in a net cost of around 7 billion given that even a partial restoration of progressive taxation would bring in more than half this net amount improved living standards could be brought about relatively easily provided dogmatic objections to public sector initiatives can be overcome

the new deal and modern memory summary economists and other social scientists may never be able to explain fully why the greatdepression happened when it did or why it initially was so severe numerous hypotheses havebeen advanced as we have seen and each of them contributes important insights into thecauses of the macroeconomic calamity in which most of the world was mired in 1929 1933 if however one is forced to adopt a monocausal theory it must center on the actions of america scentral bank which presided over an extraordinary expansion in bank credit in the mid to late1920s and then took the punch bowl off the table for the purposes of this article though the key question is why did the great depressionlast longer in the united states than it did in any other nation the answer as laid out in thenext section is presidential politics 23 there will come seven years of great plenty throughout all the land of egypt but after them will arise seven years offamine and all the plenty will be forgotten in the land of egypt the famine will consume the land genesis 41 29 30 nkjv

supply side policies in the depression evidence from france the effects of supply side policies in depressed economies are controversial we shed light on this debate using evidence from france in the 1930s in 1936 france departed from the gold standard and implemented mandatory wage increases and hours restrictions deflation ended but output stagnated we present time series and cross sectional evidence that these supply side policies in particular the 40 hour law contributed to french stagflation these results are inconsistent both with the standard one sector new keynesian model and with a medium scale multisector model calibrated to match our cross sectional estimates we conclude that the new keynesian model is a poor guide to the effects of supply side shocks in depressed economies

wage theory new deal labor policy and the great depression were government and unions to blame a growing number of economists blame the length and severity of the great depression on factors that rigidified wage rates raised production costs and interfered with the market allocation of labor the target of their critique is president franklin roosevelt s new deal labor program which they portray as creating a series of large negative supply shocks through encouragement of unions minimum wages unemployment insurance and other anticompetitive industrial relations practices the author uses a combination of institutional and keynesian theory to present the other side of the story drawing principally from the works of j r commons and j m keynes he develops both a spending and productivity rationale for stable wages during the great depression and demonstrates that the new deal s interventionist labor program was on balance necessary and beneficial he also highlights the neglected macroeconomic dimension of industrial relations theory and policy

deep recessions fast recoveries and financial crises evidence from the american record do steep recoveries follow deep recessions does it matter if a credit crunch or banking panic accompanies the recession moreover does it matter if the recession is associated with a housing bust we look at the american historical experience in an attempt to answer these questions the answers depend on the definition of a financial crisis and on how much of the recovery is considered but in general recessions associated with financial crises are generally followed by rapid recoveries we find three exceptions to this pattern the recovery from the great contraction in the 1930s the recovery after the recession of the early 1990s and the present recovery the present recovery is strikingly more tepid than the 1990s one factor we consider that may explain some of the slowness of this recovery is the moribund nature of residential investment a variable that is usually a key predictor of recessions and recoveries

is increased price flexibility stabilizing redux abstract what are the implications of increased price flexibility on output volatility in a simple dsge model we show analytically that more flexible prices always amplify output volatility for supply shocks and also amplify output volatility for demand shocks if monetary policy does not respond strongly to inflation more flexible prices often reduce welfare even under optimal monetary policy if full efficiency cannot be attained our results extend to a model with both sticky information and wages we estimate a quantitative dsge model using bayesian methods and using counterfactual experiments show that our results from the simple model continue to apply

blood and treasure exiting the great depression and lessons for today although avoiding the policy mistakes of the 1930s helped define how policy makers responded to the 2007 8 financial crisis and ensuing recession policy applications to the recovery phase are less well understood we draw on the experience of the us in the 1930s to shed light on exit strategies movements back to institutional conditions associated with steady state growth including stable inflation and broadly non interventionist credit and capital market policies we describe how policy responses to the deflation and banking crises of the 1930s coloured the exit policy debate after the great depression we show that a full exit from the great depression defined as the point at which interventionist credit and capital market policies and institutions were wound down did not occur in the 1930s it took until the 1950s for this to occur and for the federal reserve to regain its independence and return unfettered to its longer run

recovery from the great depression the farm channel in spring 1933 from march to july 1933 us industrial production rose 57 percent we show that an important source of recovery was the effect of dollar devaluation on farm prices incomes and consumption devaluation immediately raised traded crop prices and auto sales grew more rapidly in states and counties most exposed to these price increases the response was amplified in counties with more severe farm debt burdens for plausible assumptions about farmers relative mpc the incidence of higher farm prices and the aggregate multiplier this redistribution to farmers accounted for a substantial portion of spring 1933 growth this farm channel thus provides an example of how the distributional consequences of macroeconomic policies can have large aggregate effects that recovery in 1933 benefited from redistribution to farmers suggests an important limitation to the use of 1933 as a guide to the effects of monetary regime changes in other circumstances

us monetary and fiscal policy in the 1930s the paper provides a survey of fiscal and monetary policies during the 1930s under the hoover and roosevelt administrations and how they influenced the policies during the recent great recession the discussion of the causal impacts of monetary policy focuses on papers written in the last decade and the findings of scholars using dynamic structural general equilibrium modelling the discussion of fiscal policy shows why economists do not see the new deal as a keynesian stimulus describes the significant shift toward excise taxation during the 1930s and surveys estimates of the impact of federal spending on local economies the paper concludes with discussion of the lessons for the present from 1930s monetary and fiscal policy

labor force participation and monetary policy in the wake of the great recession in this paper we provide compelling evidence that cyclical factors account for the bulk of the post 2007 decline in the u s labor force participation rate we then proceed to formulate a stylized new keynesian model in which labor force participation is essentially acyclical during normal times that is in response to small or transitory shocks but drops markedly in the wake of a large and persistent aggregate demand shock finally we show that these considerations can have potentially crucial implications for the design of monetary policy especially under circumstances in which adjustments to the short term interest rate are constrained by the zero lower bound

change of monetary regime contracts and prices lessons from the great depression 1932 1935 abstract in this paper i analyze the process leading to the abandonment of the gold standard in the u s in 1933 and the devaluation of the dollar in 1934 i argue that most changes of monetary regime have an impact on contracts in this specific case contracts that were written in terms of gold or gold equivalent were rewritten in paper dollars congress did this on june 5 1933 when it abrogated the gold clause retroactively the supreme court validated the move in february 1935 the result was a very large transfer of wealth from creditors to debtors i use daily data on commodity prices to investigate the extent to which these policies contributed to ending deflation i find that commodity prices reacted strongly to the announcement of policy changes and to legal procedures involving contracts these results are consistent with the change in regime hypothesis of sargent

did sunspot forces cause the great depression abstract we apply a dynamic general equilibrium model to the period of the u s great depression in particular we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises in other words agents self fulfilling expectations can serve as a primary impulse behind fluctuations we find that the model driven only by these measured sunspot shocks can explain well the entire depression era that is the decline from 1929 to 1932 the subsequent slow recovery and the recession that occurred in 1937 1938

europe s great depression coordination failure after the first world war in this paper i survey and reinterpret the extensive literature on europe s great depression i argue that europe could not exploit its vast economic potential after 1918 because the war had not yet come to an end indeed it did not end before 1945 both domestic and international institutions suffered from a lack of reciprocal trust and commitment which can be clearly illustrated in the realm of monetary policy but affected many other areas of policy making such as energy or migration policies these institutions in turn affected expectations and thereby the extent to which for example expansionary policies could be effective

the economic effects of public financing evidence from municipal bond ratings recalibration we show that the supply of local public financing can have important effects on local economies we identify these effects by exploiting exogenous variation on municipal bond ratings due to moody s recalibration of its scale in 2010 we find that local governments increase expenditures and employment due to an expansion of their debt capacity following an upgrade these increases in local government spending lead to multiplier effects on non tradable employment and income our findings suggest that debt financed increases in government spending can improve economic conditions during recessions

international debt deleveraging i provide a framework for understanding debt deleveraging in a group of nancially integrated countries during an episode of international deleveraging world consumption demand is depressed and the world interest rate is low reecting a high propensity to save if exchange rates are allowed to oat deleveraging countries can depreciate their nominal exchange rate to increase production and mitigate the fall in consumption associated with debt reduction the key insight of the paper is that in a monetary union this channel of adjustment is shut o and therefore the falls in consumption demand and in the world interest rate are amplied hence monetary unions are especially prone to hit the zero lower bound on the nominal interest rate and enter a liquidity trap during deleveraging in a liquidity trap deleveraging gives rise to a union wide recession which is particularly severe in high debt countries the model suggests several policy interventions that mitigate the negative impact of deleveraging on output in monetary unions

the great crash and the onset of the great depression this paper argues that the collapse of stock prices in october 1929 generated temporary uncertainty about future income which led consumers to forgo purchases of durable goods that the great crash generated uncertainty is evidenced by the decline in surety expressed by contemporary forecasters that this uncertainty affected consumer behavior is shown by the fact that spending on consumer durables declined drastically in late 1929 while spending on perishable goods rose slightly this effect is confirmed by the fact that there is a significant negative relationship between stock market variability and the production of consumer durables in the prewar era

escaping from a liquidity trap and deflation the foolproof way and others existing proposals to escape from a liquidity trap and deflation including my foolproof way are discussed in the light of the optimal way to escape the optimal way involves three elements 1 an explicit central bank commitment to a higher future price level 2 a concrete action that demonstrates the central bank s commitment induces expectations of a higher future price level and jump starts the economy and 3 an exit strategy that specifies when and how to get back to normal a currency depreciation is a direct consequence of expectations of a higher future price level and hence an excellent indicator of those expectations furthermore an intentional currency depreciation and a crawling peg as in the foolproof way can implement the optimal way and in particular induce the desired expectations of a higher future price level i conclude that the foolproof way is likely to work well for japan which is in a liquidity trap now as well as for the euro area and the united states in case either would fall into a liquidity trap in the future

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

output hysteresis and optimal monetary policy abstract we derive a fully quadratic approximation to welfare under endogenous growth and study optimal monetary policy away from the zlb optimal commitment policy sets interest rates to eliminate output hysteresis a strict inflation targeting rule implements the optimal policy at the zlb strict inflation targeting is sub optimal and admits output hysteresis defined as a permanent loss in potential output a new policy rule that targets output hysteresis returns the output to the pre shock trend and approximates the welfare gains under optimal commitment policy a central bank unable to commit to future policy actions suffers from hysteresis bias it does not offset past losses in potential output

identification in macroeconomics abstract this paper discusses empirical approaches macroeconomists use to answer questions like what does monetary policy do how large are the effects of fiscal stimulus what caused the great recession why do some countries grow faster than others identification of causal effects plays two roles in this process in certain cases progress can be made using the direct approach of identifying plausibly exogenous variation in a policy and using this variation to assess the effect of the policy however external validity concerns limit what can be learned in this way carefully identified causal effects estimates can also be used as moments in a structural moment matching exercise we use the term identified moments as a short hand for estimates of responses to identified structural shocks or what applied microeconomists would call causal effects we argue that such identified moments are often powerful diagnostic tools for distinguishing between important classes of models and thereby learning

credible commitment to optimal escape from a liquidity trap the role of the balance sheet of an independent central bank we start from two empirical facts 1 central banks target cpi inflation 2 independent central banks are concerned about their balance sheet and the level of their capital the first fact makes it difficult for a central bank to implement the optimal escape from a liquidity trap because it makes a commitment to overshoot the inflation target not credible we show that the second fact helps to solve this credibility problem the optimal policy can take the form of a currency depreciation combined with a crawling peg a policy advocated by svensson as the foolproof way to escape from a liquidity trap jel e52 f31 f41 this paper starts from two empirical facts 1 central banks target infl ation measured by the consumer price index cpi 2 independent central banks are concerned about their balance sheet and the level of their capital we provide evidence for these facts below the first fact adds to the well known credibility problem of the optimal escape from a liquidity trap the second fact provides a mechanism through which the credibility problem can be solved and the optimal escape

is there a fiscal free lunch in a liquidity trap this paper uses a dsge model to examine the eects of an expansion in government spending in a liquidity trap the spending multiplier can be much larger than in the normal situation if the liquidity trap is very persistent and scal stimulus can be rapidly implemented moreover the budgetary costs may be minimal as the large response of output boosts tax revenues allowing for something close to a scal free lunch however we caution that the multiplier may be much smaller under plausible implementation lags for many types of public spending and or if the liquidity trap lasts less than two years in addition because the marginal impact of scal expansion decreases in the scale of the outlay it is crucial to distinguish between average and marginal multipliers

the deflation bias and committing to being irresponsible i model deflation at zero nominal interest rate in a microfounded general equilibrium model i show that one can analyze deflation as a credibility problem if three conditions are satisfied first the government s only policy instrument is increasing the money supply by open market operations in short term bonds second the economy is subject to large negative demand shocks third the government cannot commit to future policy i call the credibility problem that arises under these conditions the deflation bias i propose several policies to solve it they all involve printing money or issuing nominal debt in addition they require cutting taxes buying real assets such as stocks or purchasing foreign exchange the government credibly commits to being irresponsible by pursuing these policies it commits to higher money supply in the future so that the private sector expects inflation instead of deflation this is optimal since it curbs deflation and increases output by lowering the real rate of return

did the reserve requirement increases of 1936 37 reduce bank lending evidence from a quasi experiment we analyze the impact of contractionary monetary policy through increases in reserve requirements on bank lending we compare the lending behavior of banks that were subject to the requirement increases in 1936 37 federal reserve member banks to a group of banks that were not subject to the reserve increase federal reserve nonmember banks after implementing the difference in difference estimators we find that the increases in reserve requirements did not create financing constraints for member banks and lead them to reduce lending therefore the actions of the federal reserve concerning the required reserve ratios cannot be blamed for instigating the economic downturn of 1937 38

prices during the great depression was the deflation of 1930 1932 really unanticipated this paper examines inflationary expectations in order to investigate whether the deflation of 1930 32 could have been anticipated the major conclusion is that beginning in late 1930 and possibly as early as late 1929 deflation could have been anticipated at horizons of three six months this implies in turn that short run ex ante real interest rates were very high during the initial phases of the great depression these results provide further support for the proposition that monetary contraction was the driving force behind the economic decline copyright 1992 by american economic association

is increased price flexibility stabilizing this paper uses john taylor s model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing because of the mundell effect while lower prices increase output the expectation of falling prices decreases output simulations based on realistic parameter values suggest that increases in price flexibility might well increase the cyclical variability of output in the united states copyright 1986 by american economic association

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

the case of the negative nominal interest rates new estimates of the term structure of interest rates during the great depression throughout the 1930s and early 1940s u s treasury bonds and notes appeared to have negative nominal yields as they approached maturity but negative nominal interest rates are impossible in a world in which one can always hold cash the resolution to this puzzle is that treasury securities in addition to making coupon payments gave the owner the right to buy a new security on a future date this paper describes the institutional environment that led to the apparent negative nominal interest rates develops a method for valuing the exchange privilege and computes accurate measures of the yield to the coupon bearing component of these composite bond options these corrected bond and not yields are then used to calculate new estimates of the term structure of interest rates from 1929 to 1949

was the new deal contractionary can government policies that increase the monopoly power of firms and the militancy of unions increase output this paper shows that the answer is yes under certain emergency conditions these emergency conditions zero interest rates and deflation were satisfied during the great depression in the united states the new deal which facilitated monopolies and union militancy was therefore expansionary in the model presented this conclusion is contrary to a large previous literature the main reason for this divergence is that this paper incorporates rigid prices and the zero bound on the short term interest rate jel e23 e32 e52 e62 j51 n12 n42