Efficiency, Distortions and Factor Utilization during the Interwar Period

Alexander Klein and Keisuke Otsuy
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Alexander Klein: University of Kent
Keisuke Otsuy: University of Kent

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: In this paper, we analyze the International Great Depression in the US and Western Europe using the business cycle accounting method a la Chari, Kehoe and McGrattan (CKM 2007). We extend the business cycle accounting model by incorporating endogenous factor utilization which turns out to be an important transmission mechanism of the disturbances in the economy. Our main ndings are that in the U.S. labor wedges account for roughly half of the drop in output while efficiency and investment wedges each account for a quarter of it during the 1929-1933 period while in Western Europe labor wedges account for more than one-third of the output drop and efficiency, government and investment wedges are responsible for the remaining during the 1929-1932 period. Our ndings are consistent with several strands of existing descriptive and empirical literature on the International Great Depression.

Keywords: International Great Depression; Business Cycle Accounting; Efficiency, Market Distortions (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-eff and nep-his
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:147

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