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The role of real wages, productivity, and fiscal policy in Germany's Great Depression, 1928-37

Jonas Fisher () and Andreas Hornstein

No 01-07, Working Paper from Federal Reserve Bank of Richmond

Abstract: We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy was procyclical. We use the neoclassical growth model to investigate how much these factors contribute to the depression. We find that real wages, which were significantly above their market clearing levels, were the most important factor for the economic decline in the depression. Changes in productivity and fiscal policy were also important for the decline and recovery. Even though our analysis is limited to a small number of factors, the model accounts surprisingly well for the Depression in Germany.

Keywords: Depressions; Wages; Productivity; Fiscal policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-pke
Date: 2001
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