The Role of Real Wages, Productivity, and Fiscal Policy in Germany's Great Depression 1928-1937

42 Pages Posted: 10 Sep 2001

See all articles by Jonas D. M. Fisher

Jonas D. M. Fisher

Federal Reserve Bank of Chicago - Economic Research Department

Andreas Hornstein

Federal Reserve Bank of Richmond

Date Written: August 29, 2001

Abstract

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy were procyclical. We use the neoclassical growth model to investigate how much these factors contribute to the Depression. We find that real wages, which were significantly above their market clearing levels, were the most important factor for the economic decline in the Depression. Changes in productivity and fiscal policy were also important for the decline and recovery. Even though our analysis is limited to a small number of factors, the model accounts surprisingly well for the Depression in Germany.

Keywords: Great Depression, Germany, growth model, real wages, productivity, fiscal policy

JEL Classification: E13 , E32 , E62, N14 , O47

Suggested Citation

Fisher, Jonas D. M. and Hornstein, Andreas, The Role of Real Wages, Productivity, and Fiscal Policy in Germany's Great Depression 1928-1937 (August 29, 2001). FRB of Chicago Working Paper No. 2001-07. Available at SSRN: https://ssrn.com/abstract=282720 or http://dx.doi.org/10.2139/ssrn.282720

Jonas D. M. Fisher (Contact Author)

Federal Reserve Bank of Chicago - Economic Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States

Andreas Hornstein

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

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