Did Sunspot Forces Cause the Great Depression?

Mark Weder and Sharon Harrison

No 3267, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We apply a dynamic general equilibrium model to the period of the Great Depression. In particular, we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises. In other words, agents' self-fulfilling expectations can serve as a primary impulse behind fluctuations. We find that the model, driven only by these measured sunspot shocks, can explain well the entire Depression era; that is, the decline from 1929-32, the subsequent slow recovery and the recession that occurred in 1937-38.

Keywords: Great depression; Sunspots; Dynamic general equilibrium (search for similar items in EconPapers)
JEL-codes: E32 N12 (search for similar items in EconPapers)
Date: 2002-03
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (19)

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Journal Article: Did sunspot forces cause the Great Depression? (2006)
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