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Federal Reserve Bank of Richmond
Working Paper
The role of real wages, productivity, and fiscal policy in Germany's Great Depression, 1928-37
Jonas D. M. Fisher
Andreas Hornstein
Abstract

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy was procyclical. We use the neoclassical growth model to investigate how much these factors contribute to the depression. We find that real wages, which were significantly above their market clearing levels, were the most important factor for the economic decline in the depression. Changes in productivity and fiscal policy were also important for the decline and recovery. Even though our analysis is limited to a small number of factors, the model accounts surprisingly well for the Depression in Germany.


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Jonas D. M. Fisher & Andreas Hornstein, The role of real wages, productivity, and fiscal policy in Germany's Great Depression, 1928-37, Federal Reserve Bank of Richmond, Working Paper 01-07, 2001.
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Keywords: Depressions ; Wages ; Productivity ; Fiscal policy
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