Sources of Output Fluctuations during the Interwar Period: Further Evidence on the Causes of the Great Depression
Stephen Cecchetti and
Georgios Karras
The Review of Economics and Statistics, 1994, vol. 76, issue 1, 80-102
Abstract:
This paper decomposes output fluctuations during the 1913 to 1940 period into components resulting from aggregate supply and aggregate demand shocks. We estimate a number of structural models, all of which yield qualitatively similar results. While identification is normally achieved by assuming that aggregate demand shocks have no long-run real effects, we also estimate models that allow demand shocks to permanently affect output. Our findings support the following three conclusions: (1) there was a large negative aggregate demand shock in November 1929, immediately after the stock market crash; (2) aggregate demand shocks are largely responsible for the decline in output through mid-1931; and (3) beginning in mid-1931 there is an aggregate supply collapse that coincides with the onset of severe bank panics. Copyright 1994 by MIT Press.
Date: 1994
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Working Paper: Sources of Output Fluctuations During the Interwar Period: Further Evidence on the Causes of the Great Depression (1992) 
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