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Journal Article
Perils of price deflations: an analysis of the Great Depression

If a central bank adopted a zero inflation target, it would, in practice, occasionally deviate up and down from that rate, and the economy would experience episodes of mild inflation and deflation. Is deflation-a decrease in the level of prices-a cause for concern? Deflation can cause output to decline, but to what extent? This Economic Commentary explores how much of a problem deflation might be for modern economies by estimating the effect of massive price declines on output during the Great Depression. The authors find that while deflation can cause output to decline, mild episodes of ...
Economic Commentary , Issue Feb

Journal Article
Unemployment today in Europe and Japan: Lessons from the U.S. Great Depression

Fedgazette , Volume 11 , Issue Jul , Pages 13

Working Paper
Re-Examining the Role of Sticky Wages in the U.S. Great Contraction: A Multisectoral Approach

We quantify the role of contractionary monetary shocks and nominal wage rigidities in the U.S. Great Contraction. In contrast to conventional wisdom, we find that the average economy-wide real wage varied little over 1929?33, although real wages rose significantly in some industries. Using a two-sector model with intermediates and nominal wage rigidities in one sector, we find that contractionary monetary shocks can account for only a quarter of the fall in GDP, and as little as a fifth at the trough. Intermediate linkages play a key role, as the output decline in our benchmark is roughly ...
Working Papers (Old Series) , Paper 0911

Journal Article
The shadow of the Great Depression and the inflation of the 1970s

FRBSF Economic Letter

Re-examining the contributions of money and banking shocks to the U.S. Great Depression

This paper quantitatively evaluates the hypothesis that deflation can account for much of the Great Depression (1929?33). We examine two popular explanations of the Depression: (1) The ?high wage? story, according to which deflation, combined with imperfectly flexible wages, raised real wages and reduced employment and output. (2) The ?bank failure? story, according to which deflationary money shocks contributed to bank failures and to a reduction in the efficiency of financial intermediation, which in turn reduced lending and output. We evaluate these stories using general equilibrium ...
Staff Report , Paper 270

Working Paper
Money, sticky wages, and the Great Depression

This paper examines the ability of a simple stylized general equilibrium model that incorporates nominal wage rigidity to explain the magnitude and persistence of the Great Depression in the United States. The impulses to our analysis are money supply shocks. The Taylor contracts model is surprisingly successful in accounting for the behavior of major macroaggregates and real wages during the downturn phase of the Depression, i.e., from 1929:3 through mid-1933. Our analysis provides support for the hypothesis that a monetary contraction operating through a sticky wage channel played a ...
International Finance Discussion Papers , Paper 591

Then and now: Fed policy actions during the great depression and great recession

Although the recent Great Recession was severe, its financial impact never paralleled that of the Great Depression. The November Newsletter compares these two economic downturns and shows how lessons learned in the Great Depression helped current Federal Reserve policymakers stabilize the economy during the recent economic crisis.
Liber8 Economic Information Newsletter , Issue November

Working Paper
Monetary policy in the Great Depression and beyond: the sources of the Fed's inflation bias

The deflationary outcome of monetary policy during the Great Depression had two fundamental causes: 1) the Federal Reserve's use of flawed operating guides, and 2) a decision to make preservation of the gold standard the overriding objective of policy. The Great Depression resulted in lasting changes in the domestic and international monetary regime that substantially weakened the gold standard, increased political control of monetary policy, and created new opportunities to monetize government debt, all of which gave monetary policy an inflation bias. Uncorrected flaws in the Federal Reserve ...
Working Papers , Paper 1997-011

Working Paper
New Deal policies and the persistence of the Great Depression: a general equilibrium analysis

There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate the contribution of New Deal cartelization policies designed to limit competition and increase labor bargaining power to the persistence of the Depression. We develop a model of the bargaining process between labor and firms that occurred with these policies, and embed that model within a ...
Working Papers , Paper 597


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