Prices during the Great Depression: Was the Deflation of 1930-1932 Really Unanticipated?

Stephen Cecchetti

American Economic Review, 1992, vol. 82, issue 1, 141-56

Abstract: This paper examines inflationary expectations in order to investigate whether the deflation of 1930-32 could have been anticipated. The major conclusion is that beginning in late 1930, and possibly as early as late 1929, deflation could have been anticipated at horizons of three-six months. This implies, in turn, that short-run ex ante real interest rates were very high during the initial phases of the Great Depression. These results provide further support for the proposition that monetary contraction was the driving force behind the economic decline. Copyright 1992 by American Economic Association.

Date: 1992
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