Sources of Output Fluctuations During the Interwar Period: Further Evidence on the Causes of the Great Depression

45 Pages Posted: 24 Jul 2007 Last revised: 27 Jul 2010

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Georgios Karras

University of Illinois at Chicago - Department of Economics

Date Written: April 1992

Abstract

This paper decomposes output fluctuations during the 1913 to 1940 period into components resulting from aggregate supply and aggregate demand shocks. We estimates a number of different models, all of which yield qualitatively similar results. While identification is normally achieved by assuming that aggregate demand shocks have no long run real effects, we also estimate models that allow demand shocks to permanently affect output. Our findings support the following three conclusions: (i) there was a large negative aggregate demand shock in November 1929, immediately after the stock market crash; (ii) aggregate demand shocks are mainly responsible for the decline in output through mid to late 1931; (iii) beginning in mid 1931 there is an aggregate supply collapse that coincides with the onset on severe bank panics.

Suggested Citation

Cecchetti, Stephen G. and Karras, Georgios, Sources of Output Fluctuations During the Interwar Period: Further Evidence on the Causes of the Great Depression (April 1992). NBER Working Paper No. w4049. Available at SSRN: https://ssrn.com/abstract=476170

Stephen G. Cecchetti (Contact Author)

Brandeis International Business School ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Georgios Karras

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States
312-996-2683 (Phone)
312-996-3344 (Fax)

HOME PAGE: http://www.uic.edu/~gkarras/

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