What ended the Great Depression? Re-evaluating the role of fiscal policy

Nathan Perry and Matías Vernengo

Cambridge Journal of Economics, 2014, vol. 38, issue 2, 349-367

Abstract: Conventional wisdom contends that fiscal policy was of secondary importance for the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilised gold inflows to increase the money supply. Often this is shown by measuring the fiscal multipliers and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.

Date: 2014
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Working Paper: What Ended the Great Depression? Reevaluating the Role of Fiscal Policy (2011)
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