Re-Examining the Contributions of Money and Banking Shocks to the U.S. Great Depression

Cole, Harold L.; Ohanian, Lee E.

doi:10.2307/3585395

Cited by 27 publications

(32 citation statements)

References 6 publications

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“…In recessions since the Great Depression, reductions in the investmentto-output ratio have been no greater than 3 percentage points. Results in Cole and Ohanian (2001 , Table 1) indicate that the fall in the investment-to-output ratio in the 1920-1921 recession was also relatively small. By contrast, the drop in the investment-to-output ratio in the Great Depression, which was 19 percentage points, was an order of magnitude greater than that which occurred in these other recessions.…”

Section: Aggregate Quantitiesmentioning

confidence: 98%

“…The standard explanation is that this reflects the effects of New Deal programs designed to prop up the real wage. 30 This is another reason that our model specification allows for fluctuations in household labor market power. The preceding considerations suggest to us that a model that captures the key forces in play during the Great Depression must have several features:…”

Section: Other Variables and Mechanismsmentioning

confidence: 99%

“…He expresses skepticism that the premium reflects risk alone. 30 See Bordo, Erceg and Evans (2000), Cole and Ohanian (2003), and Temin (1989Temin ( , 1990). …”

Section: Other Variables and Mechanismsmentioning

confidence: 99%

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The Great Depression and the Friedman-Schwartz Hypothesis

Christiano¹,

Motto²,

Rostagno³

2003

Working Paper (Federal Reserve Bank of Cleveland)

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We evaluate the Friedman-Schwartz hypothesis that a more accommodative monetary policy could have greatly reduced the severity of the Great Depression. To do this, we first estimate a dynamic, general equilibrium model using data from the 1920s and 1930s. Although the model includes eight shocks, the story it tells about the Great Depression turns out to be a simple and familiar one. The contraction phase was primarily a consequence of a shock that induced a shift away from privately intermediated liabilities, such as demand deposits and liabilities that resemble equity, and towards currency. The slowness of the recovery from the Depression was due to a shock that increased the market power of workers. We identify a monetary base rule which responds only to the money demand shocks in the model. We solve the model with this counterfactual monetary policy rule. We then simulate the dynamic response of this model to all the estimated shocks. Based on the model analysis, we conclude that if the counterfactual policy rule had been in place in the 1930s, the Great Depression would have been relatively mild.JEL Classification: C52, C68, E3, E52, E65, G18

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Section: Aggregate Quantitiesmentioning

confidence: 98%

Section: Other Variables and Mechanismsmentioning

confidence: 99%

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The Great Depression and the Friedman-Schwartz Hypothesis

Christiano¹,

Motto²,

Rostagno³

2003

Working Paper (Federal Reserve Bank of Cleveland)

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“…In fact, the share of deposits in banks that either closed or temporarily was small. In fact, the share of deposits in banks that either closed or temporarily suspended operations for the four years from years 1930-1933 was 1.7 percent, suspended operations for the four years from years 1930-1933 was 1.7 percent, 4.3 percent, 2 percent, and 11 percent, respectively (Cole and Ohanian, 2001). 4.3 percent, 2 percent, and 11 percent, respectively (Cole and Ohanian, 2001).…”

Section: The Financial Explanation the Financial Explanationmentioning

confidence: 99%

The Economic Crisis from a Neoclassical Perspective

Ohanian

2010

Journal of Economic Perspectives

128

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This paper assesses the 2007-2009 recession using neoclassical business cycle theory. I find that the 2007-2009 U.S. recession differs substantially from other postwar U.S. recessions, and also from the 2008 recession in other countries, in that lower labor input accounts for virtually all of the decline in income and output in the United States, while lower productivity accounts for much of other U.S. recessions and the 2007-2009 recession in other countries. I also find that existing classes of models, including financial market imperfections models, do not explain the U.S. recession. This is because the 2007-2009 recession is almost exclusively related to what appear to be labor market distortions that drive a wedge between the marginal product of labor and the marginal rate of substitution between consumption and leisure, a topic about which current classes of financial imperfection models are largely silent. I discuss future avenues for developing this class of models, and I consider alternative hypotheses for the recession, including the view of John Taylor and others that economic policies intended to help manage the crisis, actually deepened the recession by increasing uncertainty and distorting incentives.

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“…To shed further light on the permanent impact of the policy on the economy, I compare these findings to those of Cole and Ohanian [32], Table 9, who studied the impact of the same real manufacturing wage sequence in a similar economy, but assuming that the wage distortion was transitory, rather than permanent, and with no workweek restriction. Amaral and MacGee [33] also are not depressed in these other analyses.…”

Section: Parameterizationmentioning

confidence: 92%

What - or Who - Started the Great Depression?

Ohanian

2009

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Herbert Hoover. I develop a theory of labor market failure for the Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation/low nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.

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Re-Examining the Contributions of Money and Banking Shocks to the U.S. Great Depression

Cited by 27 publications

References 6 publications

The Great Depression and the Friedman-Schwartz Hypothesis

The Great Depression and the Friedman-Schwartz Hypothesis

The Economic Crisis from a Neoclassical Perspective

What - or Who - Started the Great Depression?

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