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Germany's Great Depression of the early 1930s started in 1929 with a sudden stop in the current account. It ended after a foreign debt default that unfolded in several stages from 1931 to 1933. This chapter reviews Germany's macroeconomic history between the gold-based stabilisation of 1924 and the transition to autarky and domestic credit expansion in 1933. During the Dawes Plan of 1924-29, German borrowed abroad massively to pay reparations out of credit, a phenomenon that gave rise to the debate about the transfer problem between Keynes and his critics. An incentive based interpretation of the transfer problem is sketched to explain the later current account reversal. Time-varying VARs are employed to trace the propagation of the resulting macroeconomic shock, and to obtain estimates of fiscal multipliers.

Après avoir atteint 3 % en 2010, la croissance américaine a ralenti à 1,7 % en 2011. Le premier semestre avait fait état d’une pause dans la dynamique de rattrapage. La croissance s’est raffermie dans la seconde moitié de l’année pour terminer à un rythme annualisé de 3 % au quatrième trimestre 2011 (1,6 % sur un an). Basée sur une croissance faible depuis 2 ans – insuffisante pour réduire le retard de production qui selon l’OCDE se situe autour de 4 % du PIB –, l’activité pâtit des déséquilibres financiers qui perdurent du côté des ménages et de l’ajustement budgétaire mis en place l’année dernière (...).

This working paper examines monetary aggregates as means of explaining economic activity. Comparative analysis of the Great Depression and the years 2007-11 is used to test the explanatory power of monetary aggregates in accordance with their use in monetarist explanations of the Great Depression. A conclusion from this analysis is that monetarist theory can structure monetary-aggregate data to produce useful insights about economic activity for the years 2007-11.

We examine the labour market experience of the UK and the US in the recessions of the early 1920s and the early 1930s and the subsequent recoveries. These were deep recessions, comparable to that of 2008-9, but the recoveries were very different. In the UK the recovery of the 1920s was incomplete but that of the 1930s was rather less protracted than in the US. By contrast the US experienced very strong recovery in the 1920s but weaker recovery from the much deeper recession of the 1930s. A key ingredient to understanding these patterns is the interaction between economic shocks and labour market institutions. Here we survey the large literature on interwar labour markets to identify the key elements that underpinned labour market performance. We find that developments in wage setting institutions and in unemployment insurance inhibited a return to full employment in interwar Britain while in the US, New Deal legislation impeded labour market adjustment in the 1930s. We conclude with an assessment of the policy responses to labour market crises in the past and in the present

This paper explores the hypothesis that the sources of economic and financial crises differ from those of noncrisis business cycle fluctuations. We employ Markov-switching Bayesian vector autoregressions (MS-BVARs) to gather evidence about the hypothesis on a long annual U.S. sample running from 1890 to 2010. The sample covers several episodes useful for understanding U.S. economic and financial history, which generate variation in the data that aids in identifying credit supply and demand shocks. We identify these shocks within MS-BVARs by tying credit supply and demand movements to inside money and its intertemporal price. The model space is limited to stochastic volatility (SV) in the errors of the MS-BVARs. Of the 15 MS-BVARs estimated, the data favor a MS-BVAR in which economic and financial crises and non-crisis business cycle regimes recur throughout the long annual sample. The best-fitting MS-BVAR also isolates SV regimes in which shocks to inside money dominate aggregate fluctuations. (Published in Macroeconomic Dynamics, 2014.)

Financial Deregulation and Financial Crisis. On a world scale, financial deregulation played a major role. In the US in particular, it is probably the banking sector that has undergone the deepest transformations. Between 1980 and 1991, Congress passed five major laws, taking other legal measures as well, all of which aimed at deregulating the banking sector. The process finally culminated few years later in the repeal of the Glass-Steagall Act. This article analyses the impact of deregulation on banking activities in the US from the eighties up to the 2007 crisis. Classification JEL : G01, G28, N12, N4, La déréglementation financière a joué un rôle moteur à l’échelle internationale et le secteur bancaire est sans doute celui qui, aux États-Unis, à partir des années 1980, va connaître les plus profondes mutations. Entre 1980 et 1991, le Congrès américain adopte cinq lois importantes, toutes visant à mettre en oeuvre la déréglementation du secteur bancaire, ainsi que de nombreux autres projets de lois, jusqu’à parvenir quelques années plus tard à en finir avec le Glass-Steagall Act. L’objet de cet article est de s’intéresser à l’impact de cette déréglementation sur les activités des banques, durant la période comprise entre le début des années 1980 et la crise de 2007-2008. Classification JEL : G01, G28, N12, N4., Jeffers Esther, Pollin Jean-Paul. Déréglementation bancaire des années 1980 et crise financière. In: Revue d'économie financière, n°105, 2012. La nouvelle finance américaine. pp. 103-112.

This paper analyses the causes of banking crises by the way of a historical comparative case study. Moreover, the analysis draws on theories elaborated by the economist Hyman Minsky. The evidence presented suggests that the fundamental causes of the compared crises are found in the macroeconomic boom-bust fluctuation and the building up of asset market bubble(s) preceding the breakdown and the crisis. We also find boom-bust cycles as depicted in a basic Minsky-cycle, where financial instability and the outbreak of crisis is a consequence of an unbalanced mix of hedge, speculative and Ponzi financial positions. In both cases we have observed a pattern where stabilizing or thwarting institutions, as Minsky denoted them, were eroded over time. Each case demonstrates that structural economic shifts were interacting with major institutional changes and created processes that effectively removed institutional stabilizers. Hence, systemic risk was allowed to fill up the financial system. These processes were essential for building up financial imbalances of such a magnitude that the particular booms ended in systemic banking crises.

On August 15, 1971, President Richard Nixon closed the gold window and imposed a 10 percent surcharge on all dutiable imports in an effort to force other countries to revalue their currencies against the dollar. The import surcharge was lifted four months later after the Smithsonian agreement led to new exchange rate parities. This paper examines the political, economic, and legal issues surrounding the import surcharge. This historical episode may shed light on the possible use of trade sanctions as part of the effort to get China to allow the renminbi to appreciate more rapidly.

74 millions d'habitants, une puissante industrie automobile, un PIB par tête qui la place en seconde position des grands émergents derrière la Russie : il y a loin, très loin, de la Turquie d'aujourd'hui, à celle, autarcique, des débuts de la République, qui n'abritait en 1923 que 14 millions d'habitants, dont trois quarts de paysans illettrés. La plongée aux sources de sa vitalité montre que le "modèle turc" résulte d'une lente et tâtonnante construction d'un régime démocratique et d'une économie de marché tout à fait spécifiques. Aussi du pragmatisme vertueux dont a su faire preuve, sur le plan économique, le parti islamiste au pouvoir depuis dix années qui s'avèrent "Dix glorieuses" mais débouchent sur des inquiétudes.

In 1918 the United States Treasury delegated to the War Finance Corporation, a newly-created off-budget federal agency, the task of buying Liberty and later victory bonds in an effort to stabilize prices. Bayesian vector autoregression analysis of the bond purchase indicate that the WFC purchase provided significant price support, and lowered bond yields while the program operated. Once WFC purchase ended, war bond yields increased substantially. However, since the war bond purchases were financed by the sale of short-term debt certificates, the bond purchases increased short rates while reducing long rates. The WFC’s bond purchases twisted the yield curve.

“Reaganomics” is a popular term used to refer to the economic policies of Ronald W. Reagan, the 40th U.S. President (1981–1989), which called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets. In this paper, we analyze American economic policy during the Eigh-ties. After a brief introduction, where a general economic context of that country is shown, we discuss and revise the economic literature about these issues. Afterwards, we present an augmented IS-LM model for Reagan years, estimated bay VAR techniques., https://www.researchgate.net/publication/235981790_The_Economic_Policy_of_Ronald_Reagan_Between_Supply-Side_and_Keynesianism

The Recession of 1937-38 is often cited as illustrating the dangers of withdrawing fiscal and monetary stimulus too early in a weak recovery. Yet our understanding of this severe downturn is incomplete: existing studies find that changes in fiscal policy were small in comparison to the magnitude of the downturn and that higher reserve requirements were not binding on banks. This paper focuses on a neglected change in monetary policy, the sterilization of gold inflows during 1937, and finds that it exerted a powerful contractionary force during this period. The transmission of this monetary shock to the real economy appears to have worked through lower asset (equity) prices and higher interest rates.

In the summer of 1931, a financial crisis began in Austria, spread to Germany, forced Britain to abandon the gold standard, crossed the Atlantic, and afflicted financial institutions in the United States. This article describes how banks in New York City, the central money market of the United States, reacted to this trans-Atlantic trauma. New York's money-center banks anticipated the onset of a financial crisis, prepared for it by accumulating substantial reserves, and during the European crisis, continued business as usual. New York's leading bankers deliberately and collectively decided on the business-as-usual policy in order to minimize the impact of the panic in the United States. New York banks’ behavior changed only after the Federal Reserve raised discount rates to stem gold outflows in the fall of 1931.

Deux logiques concourent au financement des retraites américaines : un régime fédéral par répartition verse des pensions de base ; des fonds de retraite par capitalisation gérés par des employeurs publics ou privés complètent le système. La récession de 2009 a lourdement pesé sur les ressources du régime par répartition et ce dernier est en déficit primaire depuis 2010. Toutefois son financement n’a pas été mis en péril grâce aux revenus financiers d’un fonds de réserve qui compensent amplement le déficit primaire. La crise a réduit les ressources et rapproché la période où le régime commence à puiser dans le fonds de réserve. À long terme, ce dernier ne sera pas suffisant pour couvrir le déficit chronique. Des réformes seront donc nécessaires d’ici 2030. Avec la crise financière, les régimes par capitalisation ont souffert d’une forte dévalorisation de leurs actifs, ce qui peut poser un problème de survie pour certains fonds de pension. Pour ceux qui versent des pensions à prestation définie, le risque est porté par les employeurs qui doivent alors ajuster leurs contributions en fonction des performances boursières. Pour les pensions à cotisations définies, les aléas financiers sont intégralement supportés par les salariés. En cas de faillite, les fonds de pension à prestation définie du secteur privé bénéficient d’une garantie fédérale. Ce n’est pas le cas pour les fonds gérés par les États et les administrations locales. Pourtant, ces derniers semblent plus vulnérables car ils étaient déjà sous-capitalisés avant la crise et, de plus, leurs engagements auraient été largement sous-évalués. Des mesures correctives nationales ou locales semblent donc inévitables. In the United States, the funding of pensions is based on two pillars: a PAYG system pays basic pensions at a federal level; pension funds managed by public or private employers complete this system. The recession of 2009 has reduced the resources of the PAYG system. However, the funding has not been compromised due to financial income which offsets the primary deficit. In the long run, the accumulated reserve fund is not sufficient to cover forecasted future deficits. Reforms will be needed. In 2008, the pension funds have recorded a sharp devaluation of assets. For those that pay defined benefit pensions, the employers have to adjust their contributions. In case of bankruptcy, pension funds of private sector receive a federal guarantee. This is not the case for funds managed by states and local governments. Yet they seem more vulnerable. Corrective measures therefore seem unavoidable.

Conventional wisdom contends that fiscal policy was of secondary importance to the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilized 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.

A large body of cross-country empirical evidence identifies monetary policy and trade integration as key determinants of business cycle co-movement. Partially consistent with this, many argue that the re-emergence of the gold standard allowed for the global transmission of a deflationary shock in 1929 that culminated in the Great Depression. It is puzzling then to see decreased co-movement between 1920 and 1927 when international integration increased and nations returned to the gold standard. Fixed exchange rates and global trade were also on the rise after 1932, but co-movement declined again. Our empirical results shows that exchange rate regimes and trade were associated with higher co-movement at the bilateral level while common shocks and exchange control policies also mattered. Much of the fall after 1932 was driven by the rise of smaller blocs of monetary and trade cooperation and an inter-bloc fall in co-movement.

Although bank supervision under the National Banking System exercised a light hand and panics were frequent, depositor losses were minimal. Double liability induced shareholders to carefully monitor bank managers and voluntarily liquidate banks early if they appeared to be in trouble. Inducing more disclosure, marking assets to market, and ensuring prompt closure of insolvent national banks, the Comptroller of the Currency reinforced market discipline. The arrival of the Federal Reserve weakened this regime. Monetary policy decisions conflicted with the goal of financial stability and created moral hazard. The appearance of the Fed as an additional supervisor led to more "competition in laxity" among regulators and "regulatory arbitrage" by banks. When the Great Depression hit, policy-induced deflation and asset price volatility were misdiagnosed as failures of competition and market valuation. In response, the New Deal shifted to a regime of discretion-based supervision with forbearance.

This article deals with the relevancy of expansionary monetary policy in a situation of financial crisis in an historical perspective. We simulate, within a svar framework, the effects of expansionary monetary policy over the period 1929-1933, in the us. We suggest a renewed monetary lesson in order to enrich current monetary policies. Classification JEL : B23 ; E58 ; N12

In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy. Using microeconomic data to gauge the fundamental reserve demands of Fed member banks, we find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements.

We present estimates of home ownership for African-American and white households from 1870 to 2007. The estimates pertain to a sample of households headed by adult men participating in the labor force but the substantive findings are unchanged if the analysis is extended to all households. Over the entire period African-American households in the sample increased their home ownership rate by 46 percentage points, whereas the rate for white households increased by 20 percentage points. Thus, in the long run, the racial gap declined by 26 percentage points. Remarkably, 25 of the 26 point long-run narrowing occurred between 1870 and 1910. Since 1910, both white and black households have increased their rates of homeownership but the long-run growth in levels has been similar for both groups, and therefore the racial gap measured in percentage points was approximately constant over the past century.

This paper examines Jacob Viner's contribution to the debate and the policy decision-making concerning international monetary policy from the Great Depression to the Bretton Woods agreements. An outstanding member of the so-called 'early Chicago School of Political Economy', Viner was actively engaged in the debate over the causes and cures of the Depression, emphasizing the important role international economic problems played in producing its onset and in reinforcing its duration. During the 1930s Viner was an outspoken supporter of international monetary cooperation, set up to secure exchange rates stability, which he regarded as a paramount factor in restoring business confidence and fostering recovery. As a close assistant to Secretary of the Treasury Henry Morgenthau, Jr, Viner was able to exert a positive influence on the administration's foreign economic policy, from the Gold Stabilization Act of 1934 to the Tripartite Agreement of 1936. Although not directly involved in the Bretton Woods Conference, he played a role in preparing the ground for the establishment of multilateral agencies such as the International Monetary Fund and the International Bank for Reconstruction and Development. By means of his unpublished papers and other archival sources, as well as his writings, I shall examine Viner's analysis of the Great Depression, his contribution to the debate over American foreign economic policy and his work as economic adviser from 1930 to 1945. © 2011 Taylor & Francis.

T he economic cataclysm of the 1930s was an international phenomenon experienced by countries in all parts of the globe. Countries as diverse as the United States, Germany, Chile, and Japan all experienced significant depressions in the 1930s. Thus, the title of Charles Kindleberger's classic book The World in Depression (1973) captures an important feature of the Great Depression. These international aspects, especially the importance of the gold standard in causing the downturn and transmitting depression from one country to another, have been emphasized in recent years in excellent books by Peter Temin (1989) and Barry Eichengreen (1992). These books have rightly received widespread attention and have successfully changed the focus of much analysis of the Great Depression from the United States to the world economy. While such a change from American provincialism is surely healthy and warranted, adopting an international perspective on the Great Depression risks losing sight of the many ways in which the U.S. depression differed in timing and severity from depressions elsewhere. More important, it may obscure the many uniquely American causes of America's Great Depression. This paper examines the ways in which the U.S. experience during the 1930s resembled that of other countries in some regards, and fundamentally differed in other aspects. I also evaluate the evidence on the causes of the Great Depression in the United States and the sources of the eventual recovery. I suggest that the path of American output and unemployment before 1931 can be explained quite well with only domestic factors. Even after 1931

To a first approximation, the question of how the Great Depression spread from country to country is short and straightforward: fixed exchange rates under the gold standard transmitted negative demand shocks. The first half of this paper will describe current thinking about the relationship between the gold standard and the Great Depression. The second half of the paper will look at a phenomenon not included in this first approximation: financial crises. Many have noted that banking panics and currency crises are bad for national economies, but few have tried to model their international spread.

This paper is concerned with accounting for the saving and capital formation taking place in different sectors of the U.S. economy. In brief, where does saving arise and where is it used? Do some sectors save more than they spend for capital formation and thus are net lenders? Do other sectors save less than is required for their capital formation and thus are net borrowers? The U.S. national income accounts contain the basic data relating to these questions. However, at several points, these data must be recast in order to yield analytically useful results. When such a reformulation is made, the conclusions that can be drawn differ strikingly from much of the currently received conventional wisdom.

This paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation. We show that inherited trust of descendants of US immigrants is significantly influenced by the country of origin and the timing of arrival of their forebears. We thus use the inherited trust of descendants of US immigrants as a time-varying measure of inherited trust in their country of origin. This strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects. (JEL N11, N12, N31, N32, O47, Z13)

This paper analyzes how risk premia—and other factors affecting the comparative advantages of security-funded versus deposit-funded short-run debt—altered the relative use of debt funded by securities markets since the early-1960s and the relative use of commercial paper during the recent financial crisis. Results indicate that lower risk premia, higher information costs, and reserve requirement costs induce less relative use of commercial paper and short-run debt funded by securities markets. This paper also finds that Federal Reserve interventions in the money market helped prevent the commercial paper market from melting down to the extent seen during the early 1930s.

If there was any time to expect a large peace-time multiplier effect from federal spending in the states, it would have been during the period from 1930 through 1940. Interest rates were near the zero bound, and unemployment rates never fell below 10 percent and there was ample idle capacity. We develop an annual panel data set for the 48 states from 1930 through 1940 with evidence on federal government grants, loans, and tax collections and a variety of measures of economic activity. Using panel data methods we estimate a multiplier, defined as the change in per capita state economic activity in response to an additional dollar per capita of federal funds. The state per capita personal income multiplier with respect to per capita federal grants was around 1.1. Some point estimates for multipliers for nontransfer grants and nonfarm grants were higher but not statistically significantly different from one. There is some evidence that AAA farm grants had negative or no effect on personal income. Federal grants had stronger effects on consumption than on personal income, but they had no positive effect on various measures of private employment.

The paper provides a survey of fiscal and monetary policies during the 1930s under the Hoover and Roosevelt Administrations and how they influenced the policies during the recent Great Recession. The discussion of the causal impacts of monetary policy focuses on papers written in the last decade and the findings of scholars using dynamic structural general equilibrium modeling. The discussion of fiscal policy shows why economists do not see the New Deal as a Keynesian stimulus, describes the significant shift toward excise taxation during the 1930s, and surveys estimates of the impact of federal spending on local economies. The paper concludes with discussion of the lessons for the present from 1930s monetary and fiscal policy.

This paper develops a simple model to analyze how a lack of political competition may lead to policies that hinder economic growth. We test the predictions of the model on panel data for the US states. In these data, we find robust evidence that lack of political competition in a state is associated with anti-growth policies: higher taxes, lower capital spending and a reduced likelihood of using right-to-work laws. We also document a strong link between low political competition and low income growth.

Cet article présente une étude synthétique du système de retraite américain. Notre objectif est d’abord d’expliquer le fonctionnement des régimes par répartition et par capitalisation. Il s’agit également d’étudier comment la crise économique et financière a affecté ces régimes. On dresse aussi un bilan des prévisions officielles de long terme de l’évolution du régime par répartition en fonction de différents scénarios économiques et démographiques. Enfin, on s’intéresse à la nature du débat public et aux orientations possibles de l’action gouvernementale. Notre étude montre que la crise n’a pas mis en péril le financement du régime de retraite par répartition américain (OASDI) car ce dernier est toujours en excédent à court et moyen terme. Elle a seulement réduit le montant de cet excédent. A long terme, le fonds de réserve accumulé devrait être insuffisant pour couvrir les déficits primaires futurs. Une réforme d’envergure ne peut être exclue à partir de 2020. Avec la crise financière, les régimes par capitalisation ont souffert d’une forte dévalorisation de leurs actifs, ce qui pose un problème de survie pour certains fonds de pension. Une baisse du niveau des pensions ne peut être exclue sans apport d’un soutien financier public ou en l’absence d’une reprise suffisante des marchés financiers.

Cet article présente une étude synthétique du système de retraite américain. Notre objectif est d'abord d'expliquer le fonctionnement des régimes par répartition et par capitalisation. Il s'agit également d'étudier comment la crise économique et financière a affecté ces régimes. On dresse aussi un bilan des prévisions officielles de long terme de l'évolution du régime par répartition en fonction de différents scénarios économiques et démographiques. Enfin, on s'intéresse à la nature du débat public et aux orientations possibles de l'action gouvernementale. Notre étude montre que la crise n'a pas mis en péril le financement du régime de retraite par répartition américain (OASDI) car ce dernier est toujours en excédent à court et moyen terme. Elle a seulement réduit le montant de cet excédent. A long terme, le fonds de réserve accumulé devrait être insuffisant pour couvrir les déficits primaires futurs. Une réforme d'envergure ne peut être exclue à partir de 2020. Avec la crise financière, les régimes par capitalisation ont souffert d'une forte dévalorisation de leurs actifs, ce qui pose un problème de survie pour certains fonds de pension. Une baisse du niveau des pensions ne peut être exclue sans apport d'un soutien financier public ou en l'absence d'une reprise suffisante des marchés financiers.

Two dynamic general equilibrium economies compete in explaining the United States' interwar business cycles. Despite the demand driven contender's slight advantages, the results remain too close to call a clear winner.

This paper is about the size of fiscal multipliers and the sources of recovery from the Great Depression. Its contributions begin with a new quarterly data set for the interwar period that allows development of a VAR model of the U. S. economy over the period 1920-41. The quarterly data facilitate an estimate of the growth rate and level of potential real GDP, and this in turn allows us to date the end of the Great Depression as the period between 1939:Q1, when the output gap was 21.9 percent, and 1941:Q4, when the output gap was -1.3 percent. By using VAR dynamic forecasting and examining the effect of innovations to each variable individually, this paper’s baseline result is that 89.1 percent of the 1939:Q1-1941:Q4 recovery can be attributed to fiscal policy innovations, 34.1 percent to monetary policy innovations and the remaining -23.2 percent to the combined effect of the basic VAR dynamic forecast and innovations in non-government components of GDP (N). The paper attributes the negative innovations of N in the second half of 1941 to capacity constraints. Traditional Keynesian multipliers assume that there are no capacity constraints to impede a fiscal-driven expansion in aggregate demand. On the contrary, we find ample evidence of capacity constraints in 1941, particularly in the second half of that year. As a result our preferred government spending multiplier (which starts in 1940:Q2 and subtracts out the forecasts of the no-shock basic VAR model) is 1.80 when the time period ends in 1941:Q2 but only 0.88 when the time period ends in supply-constrained 1941:Q4. Only the 1.80 multiplier is relevant to situations like 2009-10 when capacity constraints are absent across the economy. Two sets of new insights emerge from a review of contemporary print media. We document that the American economy went to war starting in June 1940, fully 18 months before Pearl Harbor, in contrast to the widespread assumption in the previous literature that Pearl Harbor marked the beginning of WWII for the United States. We also detail the bifurcated nature of the 1941 economy, with excess capacity in its labor market but capacity constraints in many of the key manufacturing industries. By July 1941, the American economy was in a state of perceived national emergency. We not only show in two alternative sets of quarterly data that private consumption and investment actually declined in late 1941, but we also explain why. Among these examples, shortages of steel prevented auto companies from satisfying demand, and shortages of aluminum needed for aircraft production suppressed production even of the most humble of household objects, like tea kettles and zippers.

In this paper we revisit the debate over the role of the banking panics in 1930-33 in precipitating the Great Contraction. The issue hinges over whether the panics were illiquidity shocks and hence in support of Friedman and Schwartz (1963) greatly exacerbated the recession which had begun in 1929, or whether they largely reflected insolvency in response to the recession caused by other forces. Based on a VAR and new data on the sources of bank failures in the 1930s from Richardson (2007), we find that illiquidity shocks played a key role in explaining the bank failures during the Friedman and Schwartz banking panic windows. In the recent crisis the Federal Reserve learned the Friedman and Schwartz lesson from the banking panics of the 1930s of conducting expansionary open market policy to meet demands for liquidity. Unlike the 1930s the deepest problem of the recent crisis was not illiquidity but insolvency and especially the fear of insolvency of counterparties.

U.S. fertility rose from a low of 2.27 children for women born in 1908 to a peak of 3.21 children for women born in 1932. It dropped to a new low of 1.74 children for women born in 1949, before stabilizing for subsequent cohorts. We propose a novel explanation for this boom-bust pattern, linking it to the huge improvements in maternal health that started in the mid 1930s. Our hypothesis is that the improvements in maternal health contributed to the mid-twentieth century baby boom and generated a rise in women's human capital, ultimately leading to a decline in desired fertility for subsequent cohorts. To examine this link empirically, we exploit the large cross-state variation in the magnitude of the decline in pregnancy-related mortality and the differential exposure by cohort. We find that the decline in maternal mortality is associated with a rise in fertility for women born between 1921 and 1940, with a rise in college and high school graduation rates for women born in 1933-1950, and with a decline in fertility for women born in 1941-1950. These findings are consistent with a theory of fertility featuring a trade-off between the quality and quantity of children. The analysis provides new insights on the determinants of fertility in the U.S. and other countries that experienced similar improvements in maternal health.

“Reaganomics” is a popular term used to refer to the economic policies of Ronald W. Reagan, the 40th U.S. President (1981–1989), which called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets. In this paper, we analyze American economic policy during the Eigh-ties. After a brief introduction, where a general economic context of that country is shown, we discuss and revise the economic literature about these issues. Afterwards, we present an augmented IS-LM model for Reagan years, estimated bay VAR techniques.

This paper deals with the issue of using infant and childhood mortality as an indicator of inequality. The case is that of the United States in the 20th century. Using microdata from the 1900 and 1910 Integrated Public Use Microsamples (IPUMS), published data from the Birth Registration Area in the 1920s, results from a number of surveys, and the Linked Birth & Infant Death Files from the National Center for Health Statistics for 1991, infant and child mortality can be related to such other variables as occupation of father or mother, education of father or mother, family income, race, ethnicity, and residence. The evidence shows that, although there have been large absolute reductions in the level of infant and child mortality rates and also a reduction in the absolute levels of differences across socioeconomic groups, relative inequality has not diminished over the 20th century.

This paper provides three perspectives on long-run growth rates of labor productivity (LP) and of multi-factor productivity (MFP) for the U. S. economy. It extracts statistical growth trends for labor productivity from quarterly data for the total economy going back to 1952, provides new estimates of MFP growth extending back to 1891, and tackles the problem of forecasting LP and MFP twenty years into the future. The statistical trend for growth in total economy LP ranged from 2.75 percent in early 1962 down to 1.25 percent in late 1979 and recovered to 2.45 percent in 2002. Our results on productivity trends identify a problem in the interpretation of the 2008-09 recession and conclude that at present statistical trends cannot be extended past 2007. For the longer stretch of history back to 1891, the paper provides numerous corrections to the growth of labor quality and to capital quantity and quality, leading to significant rearrangements of the growth pattern of MFP, generally lowering the unadjusted MFP growth rates during 1928-50 and raising them after 1950. Nevertheless, by far the most rapid MFP growth in U. S. history occurred in 1928-50, a phenomenon that I have previously dubbed the "one big wave." The paper approaches the task of forecasting 20 years into the future by extracting relevant precedents from the growth in labor productivity and in MFP over the last seven years, the last 20 years, and the last 116 years. Its conclusion is that over the next 20 years (2007-2027) growth in real potential GDP will be 2.4 percent (the same as in 2000-07), growth in total economy labor productivity will be 1.7 percent, and growth in the more familiar concept of NFPB sector labor productivity will be 2.05 percent. The implied forecast 1.50 percent growth rate of per-capita real GDP falls far short of the historical achievement of 2.17 percent between 1929 and 2007 and represents the slowest growth of the measured American standard of living over any two-decade interval recorded since the inauguration of George Washington.

This paper discusses the fiscal policy reactions and economic policies of European countries and the United States during the Great Depression. Economic as well as economic history literature has tended to overlook the fiscal policy aspects of the Great Depression, in particular in relation to European countries. This paper concentrates specifically on this aspect, providing a comprehensive discourse on the background of the crisis and using for analysis a data set compiled from available international sources. On this basis, central government reactions, mainly on the expenditure side, are analysed. Thus, this paper provides new information concerning the economic policies during the Great Depression and helps to understands how the Great Depression developed. The conclusion reached is that fiscal policies between the two World Wars were mainly neo-classical, i.e. expenditure reacted to the development of revenue. In certain European countries, for example the Netherlands and Sweden, some counter-cyclical fiscal policies can be observed. However, as the governments there were smaller and the effect therefore comparably limited, this did not play a key role in the economic recovery. Finally, the paper briefly discusses the similarities and differences between the Great Depression and the current crisis.

In this paper we provide some evidence on when central banks have shifted from expansionary to contractionary monetary policy after a recession has ended--the exit strategy. We examine the relationship between the timing of changes in several instruments of monetary policy and the timing of changes of selected real macro aggregates and price level (inflation) variables across U.S. business cycles from 1920-2007. We find, based on historical narratives, descriptive evidence and econometric analysis, that in the 1920s and the 1950s the Fed would generally tighten when the price level turned up. By contrast, since 1960 the Fed has generally tightened when unemployment peaked and this tightening often occurred after inflation began to rise. The Fed is often too late to prevent inflation.

The prominent role of monetary policy in the U.S. interwar depression has been conventional wisdom since Friedman and Schwartz [1963]. This paper presents evidence on both the surprise and the systematic components of monetary policy between 1929 and 1933. Doubts surrounding GDP estimates for the 1920s would call into question conventional VAR techniques. We therefore adopt the FAVAR methodology of Bernanke, Boivin, and Eliasz [2005], aggregating a large number of time series into a few factors and inserting these into a monetary policy VAR. We work in a Bayesian framework and apply MCMC methods to obtain the posteriors. Employing the generalized sign restriction approach toward identification of Amir Ahmadi and Uhlig [2008], we find the effects of monetary policy shocks to have been moderate. To analyze the systematic policy component, we back out the monetary policy reaction function and its response to aggregate supply and demand shocks. Results broadly confirm the Friedman/Schwartz view about restrictive monetary policy, but indicate only moderate effects. We further analyze systematic policy through conditional forecasts of key time series at critical junctures, taken with and without the policy instrument. Effects are again quite moderate. Our results caution against a predominantly monetary interpretation of the Great Depression.

This paper discusses parallels between our current recession and the Great Depression for the intelligent general public. It stresses the role of economic models and ideas in public policy and argues that gold-standard mentality still holds sway today. The parallels are greatest in the generation of the crises, and they also illuminate the policy choices being made today. We have escaped a repeat of the Depression, but we appear to have lost the opportunity for significant financial reform.

This paper examines the role of currency and banking in the German financial crisis of 1931 for both Germany and the U.S. We specify a structural dynamic factor model to identify financial and monetary factors separately for each of the two economies. We find that monetary transmission through the Gold Standard played only a minor role in causing and propagating the crisis, while financial distress was important. We also find evidence of crisis propagation from Germany to the U.S. via the banking channel. Banking distress in both economies was apparently not endogenous to output or monetary policy. Results confirm Bernanke's (1983) conjecture that an independent, non-monetary financial channel of crisis propagation was operative in the Great Depression.

The relationships among the weather, agricultural markets, and financial markets have long been of interest to economic historians, but relatively little empirical work has been done. We push this literature forward by using modern drought indexes, which are available in detail over a wide area and for long periods of time to perform a battery of tests on the relationship between these indexes and sensitive indicators of financial stress. The drought indexes were devised by climate historians from instrument records and tree rings, and because they are unfamiliar to most economic historians and economists, we briefly describe the methodology. The financial literature in the area can be traced to William Stanley Jevons, who connected his sun spot theory to rainfall patterns. The Dust bowl of the 1930s brought the climate-finance link to the attention of the general public. Here we assemble new evidence to test various hypotheses involving the impact of extreme swings in moisture on financial stress.

Although long obscured by the Great Depression, the nationwide "bubble" that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust. Fundamentals, including a post-war construction catch-up, low interest rates and a "Greenspan put," helped to ignite the boom in the twenties, but alternative monetary policies would have only dampened not eliminated it. Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision. Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system. The elements absent in the 1920s were federal deposit insurance, the "Too Big To Fail" doctrine, and federal policies to increase mortgages to higher risk homeowners. This comparison suggests that these factors combined to induce increased risk-taking that was crucial to the eruption of the recent and worst financial crisis since the Great Depression.

Authoritarian Monarchies in the Early Modern period have been considered as a keystone of the outset of the market economy in Europe. However, as a result of their own need of coexistence with other power institutions, it has to be taken into account that those monarchies implied the survival of inefficient economic arrangements that did not precisely contribute to market integration across the Continent. Among the inefficient economic policies we can lists fixed prices as well as communal granaries, charts to assure cites supply or handicaps to free movement of goods by the customs policy into the realms. It would be mistaken to argue that those policies against free internal trade were a burden for the economic growth without analyzing the special conditions under which market run in the 17th century. The effects of the demand over the supply were not identical everywhere and, hence, its use as an explanatory concept for economic growth takes the risk of being used without an empirical base. This paper focuses on the effects that the demand caused over the householders, the appearance of rent-seeking and the consequences of high cereals prices that forced the Monarchy to limit the free internal trade in order maintaining the social status quo.

Since the current recession began in December 2007, New Deal legislation and its effectiveness have been at the center of a lively debate in Washington. This paper emphasizes some key facts about two kinds of policy that were important during the Great Depression and have since become the focus of criticism by new New Deal critics: (1) regulatory and labor relations legislation, and (2) government spending and taxation. We argue that initiatives in these policy areas probably did not slow economic growth or worsen the unemployment problem from 1933 to 1939, as claimed by a number of economists in academic papers, in the popular press, and elsewhere. To substantiate our case, we cite some important economic benefits of New Deal–era laws in the two controversial policy areas noted above. In fact, we suggest that the New Deal provided effective medicine for the Depression, though fiscal policy was not sufficiently countercyclical to conquer mass unemployment and prevent the recession of 1937–38; 1933’s National Industrial Recovery Act was badly flawed and poorly administered, and the help provided by the National Labor Relations Act of 1935 came too late to have a big effect on the recovery.

The paper presents evidence of an upward ratchet in transfers and taxes in the U.S. around World-War II. This finding is explained within a political-economy framework involving an executive who sets defense spending and the median voter in the population who interacts with a (richer) agenda setter in Congress in setting redistribution. While the setter managed to cap redistribution in the pre-war period, the War itself pushed up the status-quo tax burden, raising the bargaining power of the median voter as defense spending receded. This raised the equilibrium level of redistribution. The higher share of post-War transfers may thus be interpreted as a delayed fulfilment of a, not fully satisfied, popular demand for redistribution inherited from the Great Depression.