Great Expectations and the End of the Depression

Gauti Eggertsson

American Economic Review, 2008, vol. 98, issue 4, 1476-1516

Abstract: This paper suggests that the US recovery from the Great Depression was driven by a shift in expectations. This shift was caused by President Franklin Delano Roosevelt's policy actions. On the monetary policy side, Roosevelt abolished the gold standard and -- even more importantly -- announced the explicit objective of inflating the price level to pre-Depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending, which made his policy objective credible. These actions violated prevailing policy dogmas and initiated a policy regime change as in Sargent (1983) and Temin and Wigmore (1990). The economic consequences of Roosevelt are evaluated in a dynamic stochastic general equilibrium model with nominal frictions. (JEL D84, E52, E62, N12, N42)

JEL-codes: D84 E52 E62 N12 N42 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.4.1476
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Citations: View citations in EconPapers (174)

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Working Paper: Great expectations and the end of the depression (2005)
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