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Working Paper
On the aggregate welfare cost of Great Depression unemployment
Chatterjee, Satyajit; Corbae, Dean (2006)
The potential benefit of policies that eliminate a small likelihood of economic crises is calculated. An economic crisis is defined as an increase in unemployment of the magnitude observed during the Great Depression. For the U.S., the maximum-likelihood estimate of entering a depression is found to be about once every 83 years. The welfare gain from setting this small probability to zero can range between 1 and 7 percent of annual consumption in perpetuity. For most estimates, more than half of these large gains result from a reduction in individual consumption volatility. ; This paper ...
Working Papers , Paper 06-18

Report
A decade lost and found: Mexico and Chile in the 1980s
Kehoe, Timothy J.; Kehoe, Patrick J.; Soto, Raimundo; Bergoeing, Raphael (2001)
Chile and Mexico experienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation based on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting, a calibrated growth model, and economic theory, we conclude that the crucial difference between the two countries was the earlier policy reforms in Chile that generated faster productivity growth. The most crucial ...
Staff Report , Paper 292

Report
Financial collapse and active monetary policy: a lesson from the Great Depression
Corbae, Dean; Cooper, Russell W. (2001)
We analyze financial collapses, such as the one that occurred during the U.S. Great Depression, from the perspective of a monetary model with multiple equilibria. The multiplicity arises from the presence of a strategic complementarity due to increasing returns to scale in the intermediation process. Intermediaries provide the link between savers and firms who require working capital for production. Fluctuations in the intermediation process are driven by variations in the confidence agents place in the financial system. From a positive perspective, our model matches closely the qualitative ...
Staff Report , Paper 289

Journal Article
Lessons from the panic of 1907
Tallman, Ellis W.; Moen, Jon R. (1990-05)
Economic Review , Issue May , Pages 2-13

Report
Why did productivity fall so much during the Great Depression?
Ohanian, Lee E. (2001)
Between 1929 and 1933, real output per adult fell over 30 percent and total factor productivity fell 18 percent. This productivity decrease is much larger than expected from just extrapolating the productivity decrease that typically occurs during recessions. This paper evaluates what factors may have caused this large decrease, including unmeasured factor utilization, changes in the composition of production, and increasing returns. I find that these factors combined explain less than one-third of the 18 percent decrease, and I conclude that the productivity decrease during the Great ...
Staff Report , Paper 285

Journal Article
American banks during the Great Depression: a new research agenda
Mason, Joseph R. (1998-05)
Review , Issue May

Report
Great expectations and the end of the depression
Eggertsson, Gauti B. (2005)
This paper argues that the U.S. economy's recovery from the Great Depression was driven by a shift in expectations brought about by the policy actions of President Franklin Delano Roosevelt. On the monetary policy side, Roosevelt abolished the gold standard and-even more important-announced the policy objective of inflating the price level to pre-depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending. Together, these actions made his policy objective credible; they violated prevailing policy dogmas and introduced a policy regime change such as that ...
Staff Reports , Paper 234

Working Paper
Capital taxation during the U.S. Great Depression
McGrattan, Ellen R. (2010)
Previous studies quantifying the effects of increased capital taxation during the U.S. Great Depression find that its contribution is small, both in accounting for the downturn in the early 1930s and in accounting for the slow recovery after 1934. This paper confirms that the effects are small in the case of taxation of business profits, but finds large effects in the case of taxation of dividend income. Tax rates on dividends rose dramatically during the 1930s and, when fed into a general equilibrium model, imply significant declines in investment and equity values and nontrivial declines in ...
Working Papers , Paper 670

Journal Article
The shadow of the Great Depression and the inflation of the 1970s
DeLong, J. Bradford (1998)
FRBSF Economic Letter

Report
A Bayesian approach to estimating tax and spending multipliers
Eggertsson, Gauti B.; Denes, Matthew (2009)
This paper outlines a simple Bayesian methodology for estimating tax and spending multipliers in a dynamic stochastic general equilibrium (DSGE) model. After forming priors about the parameters of the model and the relevant shock, we used the model to exactly match only one data point: the trough of the Great Depression, that is, an output collapse of 30 percent, deflation of 10 percent, and a zero short-term nominal interest rate. Because we form our priors as distributions, the key economic inference of our analysis--the multipliers of tax and spending--are well-defined probability ...
Staff Reports , Paper 403

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