Great expectations and the end of the depression

Gauti Eggertsson

No 234, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper argues that the U.S. economy's recovery from the Great Depression was driven by a shift in expectations brought about by the policy actions of President Franklin Delano Roosevelt. On the monetary policy side, Roosevelt abolished the gold standard and-even more important-announced the policy objective of inflating the price level to pre-depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending. Together, these actions made his policy objective credible; they violated prevailing policy dogmas and introduced a policy regime change such as that described in work by Sargent and by Temin and Wigmore. The economic consequences of Roosevelt's policies are evaluated in a dynamic stochastic general equilibrium model with sticky prices and rational expectations.

Keywords: Depressions; Economic policy; Rational expectations (Economic theory); Gold standard; Price levels (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dge, nep-his and nep-mac
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Citations: View citations in EconPapers (3)

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Journal Article: Great Expectations and the End of the Depression (2008)
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