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

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  • Cecchetti, Stephen G
  • Karras, Georgios

Abstract

This paper decomposes output fluctuations during the 1913 to 1940 period into components resulting from aggregate supply and aggregate demand shocks. We estimate a number of structural 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: (1) there was a large negative aggregate demand shock in November 1929, immediately after the stock market crash; (2) aggregate demand shocks are largely responsible for the decline in output through mid-1931; and (3) beginning in mid-1931 there is an aggregate supply collapse that coincides with the onset of severe bank panics. Copyright 1994 by MIT Press.

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  • Cecchetti, Stephen G & Karras, Georgios, 1994. "Sources of Output Fluctuations during the Interwar Period: Further Evidence on the Causes of the Great Depression," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 80-102, February.
    • Handle: RePEc:tpr:restat:v:76:y:1994:i:1:p:80-102
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