Академический Документы
Профессиональный Документы
Культура Документы
Ben Bernanke: To understand the Great Depression is the Holy Grail of macroeconomics. Not only did the Depression give birth to macroeconomics as a distinct field of study, but also---to an extent that is not always fully appreciatedthe experience of the 1930s continues to influence macroeconomists; beliefs, policy recommendations and research agendas..We do not yet have our hands on the Grail by any means..(JMCB, 1995)
Rex Tugwell (advisor to Roosevelt) The Cat is out of the Bag. There is no invisible hand. There never was. If the depression has not taught us that we are incapable of education..We must now supply a real and visible guiding hand to do the task which that mythical, nonexistent, invisible agency was supposed to perform, but never did.
Consequences
1. World War I---9.5 million deaths. Loss of a generation (UK 1m, France 1.4m, Germany 2m, US 114,000) 2. Destruction of physical capital especially Belgium and northern France 3. Distortion of patterns of production, trade and consumption (e.g. high wartime prices for commoditiesboom and collapse in U.S. 4. High cost of war. Estimated $208 billion. 5. Political and economic borders of Europe are redrawn. 6. Inter-allied war debts and German reparations.
United States
United Kingdom
8.1 3.2
Other Countries
To pay principal and interest, war devastated economies would have to run balance of payments surpluses.
German Reparations
John Maynard Keynes (1919) Reparations were a policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness. They were abhorrent and detestable. tienne Mantoux (1946) Reparations not excessive, destructive or uncollectible. The French paid in 1815 and 1871---Le Boche Paiera
Germany1923-1931 DM 50 Vichy 1940-44 FF 479 Germany1953-1965 527 US$ Japan 1955-1965 1486 US$
Banking Collapse
July 1929, 24,504 banks, $49 billion deposits. December 1932, 17,802 banks, with $36 billion. After Bank Holiday March 1933, 11,878 banks with $23 billion deposits.
1. 2. 3. 4. 5. 6.
Booming Strong Economy in 1920s 140 Beginning Shocks, 1928-1929 130 Aggravating Shocks, 1930-1933 120 Rock Bottom and Recovery, 1933-1936 The 1937-19380 Recession 11 The Recovery, 1939-1941
1929=100 100 90
80
70
60 19201921 1922 19231924 1925 1926 1927 1928 19291930 19311932 1933 19341935 1936 19371938 1939 19401941
R e a l G D P , 1 9 2 0 -1 9 4 1
90
80
70
60 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941
1.
Booming Strong Economy in 1920sbut a) Its the Roaring Twenties! b) No trend inflation c) High productivity growth d) 1922-1929, GNP grew at 4.7%, e) Unemployment averaged 3.7%. f) Fed accommodated seasonal demands for credit and attempted to smooth economic fluctuations. (2 brief recessions) g) BUT: Weak American Agriculture: low prices, high debt, weak banks h) BUT: Weak Europe: reparations, debts to U.S., slow growth, gold standard fragile (overvalued , UK slumps) and (undervalued FF, France booms) i) BUT: U.S. Stock market boom halts foreign loans to Germany, Eastern Europe and Latin America
3. 3.
The Recovery, 1939-1941 a) Monetary Expansion b) Fiscal Expansion in preparation for war.
9000 Banks suspend operations. Depositors and stockholders lose $2.5 billion = 2.4% of GDP...not the whole story
How do Friedman and Schwartz explain why the Fed did not act?
Up to end of 1930
What is the Fed concerned about? How does it react to banking failures?
Who was Benjamin Strong? New York Fed v. Board of Governors? What could the Fed have done 1930-1931? What does Congress do?
Understanding the Great Depression: Four Basic Questions 1. 2. 3. 4. Why it Began? Why so Deep? Duration? Recovery?
Understanding the Great Depression: Four Basic Questions 1. Why it Began? Business Cycle Peak 7/8-1929, Federal Reserves tight policy 1. Why so Deep? Banking Panics. Inaction of the Federal Reserve 1. Duration? 2. Recovery?
How is the economy driven into a severe depression by the declining money supply? What is the mechanism of transmission? Several Explanations
Output
Output
r = i p(expected)
Sources of the onset1929-1930/1931 contrasts previous experience The decline in consumer spending and fixed investment that are the key elements that need to be explained.
Romer (1992)
Debt Deflation Hypothesis: Hamilton looks at the futures markets for predictions of future prices---errors random until 1930s when underestimate deflation seriously----dont believe that crisis will continue
Klug, Landon-Lane and White looked at the forecasts of Railroad Shippers and found huge cumulating errors in forecasts of carloadings---businessmen keep thinking that recovery is around the bend.
2 0
1 0
0 p rc n g e r e e ta e rro
-0 1
-0 2
-0 3
-0 4
-0 5
12 98
13 90
13 92
13 94 Y rad ure e nQ t r a a
13 96
13 98
14 90
Banking crises an important determinant of loans as much as industrial Panic production. begins Liquidation of loans after stock market crash But then credit declines little even though IP falls 25% until banking crises.
Understanding the Great Depression: Four Basic Questions 1. Why it Began? Business Cycle Peak 7/8-1929, Federal Reserves tight policy 1. Why so Deep? Banking Panics. Inaction of the Federal Reserveprolonged monetary contraction 1. Duration?----Clearly inaction plays a role what else? 2. Recovery?
Price Level
Price Level
Output
Output
2 Percent
1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939
-2
-4
-6
-8
-10
Actual G DP
Full E m p loym en t G DP
Industrial Policy?
Specific Intervention in industry? National Industry Recovery Act (NIRA) of 1933 created the National Recovery Administration (NRA). (Declared unconstitutional May 1935) National Labor Relations Act (1935) that promoted unions and Fair Labor Standards Act (1938) that set minimum wages in certain industries and regulates working conditions. NRA established guidelines that raised nominal wages and prices and encouraged higher levels of employment by work-sharing reductions in the length of the work week.
Industrial Policy
Weinstein (1980), using aggregate monthly data on hourly earnings in manufacturing, he found that the NIRA raised nominal wages directly and indirectly by raising prices. Econometric estimates that average hourly earnings would have been 35 cents not 60 cents. Result----higher wages create more unemployment and increase the duration of the depression because of higher costs to producers--counterproductive Shift in the Aggregate Supply Curve
Did the Duration have something to do with bad monetary policy? After 19291933, had the Fed learned its lesson?
Recession of 1937-1938
Did the Fed learn its lesson? Rising excess reserves held by banks Fed worries about inflation potential and wants to induce lending. Uses new tool of required reserves. Required reserve ratio doubled. Result? Banks raise their excess reserves and huge monetary contraction.
1. Why so Deep?
Banking Panics. Inaction of the Federal Reserve. Prolonged Monetary Contraction
1. Duration?
Continued Monetary Policy Mistakes, Fiscal Policy not tried. Industrial Policy makes things worse.
1. Recovery? Why?
Recovery, 1934-1937.why?
Real GDP grows at 10% p.a. 19341937. But real GDP on reaches 1929 peak in 1937 and trend path in 1942. What drove the recovery. Friedman and Schwartz (1963) and Romer (1992): huge increases in the money supply.
130
120
110 1929=100
100
90
80
70
60 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941
1. Why so Deep?
Banking Panics. Inaction of the Federal Reserve Prolonged Monetary Contraction.
1. Duration?
Continued Monetary Policy Mistakes, Fiscal Policy not tried. Industrial Policy makes things worse.
1. Recovery?
Monetary Expansion