What Ended the Great Depression? Reevaluating the Role of Fiscal Policy

Levy Economics Institute, Working Paper No. 678

20 Pages Posted: 26 Jul 2011  

Nathan Perry

Colorado Mesa University

Matías Vernengo

Bucknell University

Date Written: July 26, 2011

Abstract

Conventional wisdom contends that fiscal policy was of secondary importance to the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilized gold inflows to increase the money supply. Often, this is shown by measuring the fiscal multipliers, and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.

Keywords: Fiscal Policy, Great Depression

JEL Classification: E62, E63, N12

Suggested Citation

Perry, Nathan and Vernengo, Matías, What Ended the Great Depression? Reevaluating the Role of Fiscal Policy (July 26, 2011). Levy Economics Institute, Working Paper No. 678. Available at SSRN: https://ssrn.com/abstract=1895631 or http://dx.doi.org/10.2139/ssrn.1895631

Nathan Perry (Contact Author)

Colorado Mesa University

1100 North Ave
Grand Junction, CO 81501
United States

Matias Vernengo

Bucknell University ( email )

701 Moore Ave.
Lewisburg, PA 17837
United States

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