Recovery of 1933

Margaret Jacobson, Eric Leeper and Bruce Preston

No 25629, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When Roosevelt abandoned the gold standard in April 1933, he converted government debt from a tax-backed claim to gold to a claim to dollars, opening the door to unbacked fiscal expansion. Roosevelt followed a state-contingent fiscal rule that ran nominal-debt-financed primary deficits until the price level rose and economic activity recovered. Theory suggests that government spending multipliers can be substantially larger when fiscal expansions are unbacked than when they are tax-backed. VAR estimates using data on “emergency” unbacked spending and “ordinary” backed spending confirm this prediction and find that primary deficits made quantitatively important contributions to raising both the price level and real GNP after 1933. VAR evidence does not support the conventional monetary explanation that gold revaluation and gold inflows, which raised the monetary base, drove the recovery independently of fiscal actions.

JEL-codes: E31 E42 E6 N12 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-his and nep-mac
Note: EFG
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Citations: View citations in EconPapers (18)

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Working Paper: Recovery of 1933 (2023)
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