NBER Working Papers on the Great Depression

This is a partial listing, with links, of papers from the National Bureau of Economic Research regarding the Great Depression.  All of the papers below are in Adobe Acrobat format.  You must have the Acrobat reader in order to view them.  Click here to download the viewer.
Title Abstract
"The Rise and Fall of a Barbarous Relic: The Role of Gold in the International Monetary System", by Michael D. Bordo, Barry Eichengreen, 03/01/98 In this paper we analyze the changing role of gold in the international monetary system, in particular the persistence of gold holdings by monetary authorities for 20 years following the breakdown of the Brettone Woods system system and the Second Amendment to the Articles of Agreement of the International Monetary Fund which severed the formal link to gold. We stress four points. First, the gold-exchange standard was a recent arrangement that emerged only around 1900 in response to a set of historically-specific factors which also help to account for it smooth operation. How long those factors would have continued to support it will never be known, due to a great war and then a great depression. Second, a system which relied on inelastically supplied precious metal and elastically suppled foreign exchange to meet the the world economy's demand for reserves was intrinsically fragile, prone to confidence problems, and a transmission belt for policy mistakes. Third, network externalities, statutory restrictions and habit all contributed to the persistence of the practice of holding gold reserves. But the hold of even factors as powerful as these inevitably weakens with time and the effects of their erosion are reinforced by the rise of international capital mobility, which increases the ease of holding other forms of reserves, both unborrowed and borrowed, and by the shift to greater exchange-rate flexibility, which according to our results diminishes the demand for reserves in general. Fourth and finally, network externalities, in conjunction with central bankers' collective sense of responsibility for the stability of the price of what remains an important reserve asset, suggest that the same factors which have long held in place the practice of holding gold reserves, when they come unstuck, may become unstuck all at once.
"The Sources of Regional Variation in the Severity of the Great Depression: Evidence from U.S. Manufacturing, 1919-1937", by Joshua L. Rosenbloom, William A. Sundstrom, 11/01/97 The severity of the Great Depression in the United States varied by region. Most notably compared with the rest of the country, the South Atlantic states experienced a milder contraction while the Mountain states suffered more severely. The impact of the contraction was more" uniform across other regions of the country--surprisingly so, considering the large regional" differences in industrial structure. We employ data from the biennial Census of Manufactures on" 20 individual manufacturing industries disaggregated by state to analyze the relative" contributions of industry mix and location to regional variations in economic performance during" the period 1919-1937. Industrial composition had a significant impact on regional employment" growth, with regions that concentrated on the production of durable goods or inputs to the" construction sector tending to fare worse than others. Long-run regional trends also played an" important role in regional variation, and explain much of the South Atlantic region's more" favorable performance over the cycle.
"Money, Sticky Wages, and the Great Depression", by Michael D. Bordo, Christopher J. Erceg, Charles N. Evans, 07/01/97 This paper examines the ability of a simple stylized general equilibrium model that incorporates nominal wage rigidity to explain the magnitude and persistence of the Great Depression in the United States. The impulses to our analysis are money supply shocks. The Taylor contracts model is surprisingly successful in accounting for the behavior of major macroaggregates and real wages during the downturn phase of the Depression, i.e., from 1929:3 through mid-1933. Our analysis provides support for the hypothesis that a monetary contraction operating through a sticky wage channel played a significant role in accounting for the downturn, and also provides an interesting refinement to this explanation. In particular, both the absolute severity of the Depression's downturn and its relative severity compared to the 1920-21 recession are likely attributable to the price decline having a much larger unanticipated component during the Depression, as well as less flexible wage-setting practices during this latter period. Another finding casts doubt on explanations for the 1933-36 recovery that rely heavily on the substantial remonetization that began in 1933.
"The Gold Standard and the Great Depression", by Barry Eichengreen, Peter Temin, 06/01/97 This paper, written primarily for historians, attempts to explain why political leaders and central bankers continued to adhere to the gold standard as the Great Depression intensified. We do not focus on the effects of the gold standard on the Depression, which we and others have documented elsewhere, but on the reasons why policy makers chose the policies they did. We argue that the mentality of the gold standard was pervasive and compelling to the leaders of the interwar economy. It was expressed and reinforced by the discourse among these leaders. It was opposed and finally defeated by mass politics, but only after the interaction of national policies had drawn the world into the Great Depression.
"The Great Depression and the Regulating State: Federal Government Regulations of Agriculture: 1884-1970", by Gary D. Libecap, 04/01/97 The New Deal increased the amount and breadth of agricultural regulation in the economy, shifting it from providing public goods and transfers to controlling supplies and directing government purchases to raise prices, and created the institutional structure to continue the new regulation long after the crisis ended. Agricultural laws passed by Congress and the President from 1884 through 1970 are classified as to whether they provided public goods, gave direct and indirect transfers, or engaged in economic regulation. Additionally, laws enacted from 1940 through 1970 are classified as to whether or not they were linked to specific New Deal agricultural programs. The hypothesis is tested that absent the Great Depression and New Deal, the pattern of agricultural regulation with public goods and transfers that existed prior to 1933 would have continued through 1970. Budget appropriations for economic regulation of agricultural commodities are assembled and categorized as demand enhancement and supply control to analyze how the New Deal affected regulatory expenditures relative to what existed prior to 1933. Additionally, staffing and budgets for the U.S. Department of Agriculture and domestic wheat prices are examined to determine if they were changed by New Deal policies from 1933 through 1970 compared to the pre-New Deal period. International comparisons are made to determine how the U.S. regulatory experience compared to that in other western industrial countries.
"Understanding the Great Depression: Lessons for Current Policy", by Stephen G. Cecchetti, 04/01/97 Over the four years beginning in the summer of 1929, financial markets, labor markets and goods markets all virtually ceased to function. Throughout this, the government policymaking apparatus seemed helpless. Since the end of the Great Depression, macroeconomists have labored diligently in an effort to understand the circumstances that led to the wholesale collapse of the economy. What lessons can we draw from our study of these events? In this essay, I argue that the Federal Reserve played a key role in nearly every policy failure during this period, and so the major lessons learned from the Great Depression concern the function of the central bank and the financial system. In my view, there is now a broad consensus supporting three conclusions. First, the collapse of the finance system could have been stopped if the central bank had properly understood its function as the lender of last resort. Second, deflation played an extremely important role deepening the Depression. And third, the gold standard, as a method for supporting a fixed exchange rate system, was disastrous.
"The Great Depression as a Watershed: International Capital Mobility over the Long Run", by Maurice Obstfeld, Alan M. Taylor, 03/01/97 This paper surveys the evolution of international capital mobility since the late nineteenth century. We begin with an overview of empirical evidence on the fall and rise of integration in the global capital market. A discussion of institutional developments focuses on the use of capital controls and the pursuit of domestic macroeconomic policy objectives in the context of changing monetary regimes. A fundamental macroeconomic policy trilemma has forced policymakers to trade off among conflicting goals. The natural implication of the trilemma is that capital mobility has prevailed and expanded under circumstances of widespread political support either for an exchange-rate subordinated monetary policy regime (e.g., the gold standard), or for a monetary regime geared mainly toward domestic objectives at the expense of exchange-rate stability (e.g., the recent float). Through its effect on popular attitudes toward both the gold standard and the legitimate scope for government macroeconomic intervention, the Great Depression emerges as the key turning point in the recent history of international capital markets.
"Was the Great Depression a Watershed for American Monetary Policy?", by Charles W. Calomiris, David C. Wheelock, 03/01/97 The Great Depression changed the institutions governing monetary policy. These changes included the departure from the gold standard, an opening of a a new avenue for monetizing government debt, changes in the structure of the Federal Reserve System, and new monetary powers of the Treasury. Ideo- logical changes accompanied institutional changes. We examine whether and how thes changes mattered for post-Depression monetary policy.  With regard to the period 1935-1941, the tools of Fed policy, but not its goals or tactics, changed. But structural reforms weakened the Federal Reserve relative to the Treasury, and removed a key limit on the monetization of government debt. The increased power of the Treasury to determine the direction of policy, along with the departure from gold and the new ment debt produced a new (albeit small) inflationary bias in monetary policy that lasted until the Treasury-Fed Accord of 1951. The Fed regained some independence with the Accord of 1951.  The Fed returned to its traditional pre-Depression) operating methods, and the procyclical bias in these procedures--along with pressures to monetize government debt--explains how the Fed stumbled into an inflationary policy in the 1960s. Depression-era changes--especially the departure from the gold standard in 1933 and the relaxation of an important constraint on deficit monetization in 1932--made this inflationary policy error possible, and contributed to the persistence of inflationary policy.
"Implications of the Great Depression for the Development of the International Monetary System", by Michael D. Bordo, Barry Eichengreen, 01/01/97 In this paper we speculate about the evolution of the international monetary system in the last 2/3 of the 20th century absent the Great Depression but present the major post-Depression political and economic upheavals: WW I and II and the Cold War. We argue that without the Depression the gold-exchange standard of the 1920s would have persisted until the outbreak of WWI. It would have been suspended during the war and for a period of postwar reconstruction before being restored in the first half of the 1950s. The Bretton Woods Conference would not have taken place, and instead of a Bretton Woods System of pegged-but-adjustable exchange rates and restrictions on capital-account convertibility, an unreformed gold-exchange standard of pegged exchange rates and unlimited international capital mobility would have been restored. But this gold-exchange standard would have collapsed even earlier than actually was the case with Bretton Woods. The move toward floating exchange rates that followed would have taken place well before 1971 in our conterfactual We construct a model of the international monetary system from 1928-1971 and simulate its implications for the determination of the world price level and the durability of the hypothetical gold-exchange standard. We then examine, based on regressions for a 61-country panel, the implications for economic growth and resource allocation of allowing 1920s-style international capital mobility after World War II. Based on the implications of our model simulations and the capital controls regression we contemplate the implications for institution building and international cooperation of the `no Great Depression' scenario.
"Nominal Wage Stickiness and Aggregate Supply in the Great Depression", by Ben S. Bernanke, Kevin Carey, 01/01/96 Building on earlier work by Eichengreen and Sachs, we use data for 22 countries to study the role of wage stickiness in propagating the Great Depression. Recent research suggests that monetary shocks, transmitted internationally by the gold standard, were a major cause of the Depression. Accordingly, we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships. We find that nominal wages adjusted quite slowly to falling prices, and that the resulting increases in real wages depressed output. These findings leave open the question of why wages were so inertial in the face of extreme labor market conditions.
"Financial Intermediation and The Great Depression: A Multiple Equilibrium Interpretation", by Russell Cooper, Joao Ejarque, 05/01/1995 This paper explores the behavior of the U.S. economy during the interwar period from the perspective of a model in which the existence of non-convexities in the intermediation process gives rise to a multiplicity of equilibria. The resulting indeterminancy is resolved through a sunspot process which leads to endogenous fluctuations in aggregate economic activity. From this perspective, the Depression period is represented as a regime shift associated with a financial crisis. Our model economy has properties which are broadly consistent with observations over the interwar period. Contrary to observation, the model predicts a negative correlation of consumption and investment as well as a highly volatile capital stock. Our model of financial crisis reproduces many aspects of the Great Depression though the model predicts a much sharper fall in investment than is observed in the data. Modifications to our model (adding durable goods and a capacity utilization choice) do not overcome these deficiencies.
"The Great Depression", by Peter Temin, 11/01/1994 This history of the Great Depression was prepared for The Cambridge Economic History of the United States. It describes real and imagined causes of the Depression, bank failures and deflation, the Fed and the gold standard, the start of recovery, the first New Deal, and the second New Deal. I argue that adherence to the gold standard caused the Depression, that abandoning gold started recovery, and that several of the New Deal measures adopted in the recovery lasted in good order for half a century.