The housing slump and the great depression in the USA

David Greasley () and Jakob Madsen
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David Greasley: Edinburgh University, Edinburgh, UK

Cliometrica, Journal of Historical Economics and Econometric History, 2013, vol. 7, issue 1, 15-35

Abstract: The collapse of residential construction was a notable feature of the Great Depression in the USA. The housing slump did not simply follow the downward shifts in income: rather residential investment collapse helped to precipitate the Great Depression. By utilizing an augmented Tobin’s q model of residential investment, we show that heightened uncertainty surrounding builders’ anticipated profits largely explains the housing slump in the key year of 1930. A combination of forces, including house prices, building costs, credit and demand constraints, and financing costs, is shown to explain the longer decline of residential investment in 1928–1933. Tighter monetary policy played an important role in 1928–1929, whereas financial disintermediation was influential in 1933–1934.

Keywords: Housing; Great depression; Tobin’s q; Uncertainty (search for similar items in EconPapers)
JEL-codes: E22 E44 G01 N22 R31 (search for similar items in EconPapers)
Date: 2013
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