The Role of Preference Shocks and Capital Utilization in the Great Depression
Humboldt University of Berlin - Faculty of Economics; Centre for Economic Policy Research (CEPR)
Centre for Dynamic Macroeconomic Analysis Working Paper No. 0405
The paper investigates the notion that preference shocks play a central role in our understanding of the Great Depression. I identify a series of universally large negative shocks which destabilized the U.S. during the 1930s. When the artificial economy is paired with variable capital utilization and mildly increasing returns to scale in production, it is able to account for most of the decline in economic activity and it is able to predict realistic persistence.
Number of Pages in PDF File: 27
Keywords: Great depression, preference shocks, dynamic general equilibrium
JEL Classification: E32, N12working papers series
Date posted: May 9, 2005
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