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  • 8c97kq49n?file=thumbnail
    Creator: Kehoe, Timothy J. and Prescott, Edward C.
    Series: Staff Report (Federal Reserve Bank of Minneapolis. Research Dept.)
    Number: 418
    Abstract: Three of the arguments made by Temin (2008) in his review of Great Depressions of the Twentieth Century are demonstrably wrong: that the treatment of the data in the volume is cursory; that the definition of great depressions is too general and, in particular, groups slow growth experiences in Latin America in the 1980s with far more severe great depressions in Europe in the 1930s; and that the book is an advertisement for the real business cycle methodology. Without these three arguments — which are the results of obvious conceptual and arithmetical errors, including copying the wrong column of data from a source — his review says little more than that he does not think it appropriate to apply our dynamic general equilibrium methodology to the study of great depressions, and he does not like the conclusion that we draw: that a successful model of a great depression needs to be able to account for the effects of government policy on productivity.

    In 2008, Peter Temin wrote a review of the book that appeared in the Journal of Economic Literature. This staff report and accompanying data file are in response to the review.

    Citation for review: Temin, Peter. 2008. "Real Business Cycle Views of the Great Depression and Recent Events: A Review of Timothy J. Kehoe and Edward C. Prescott's Great Depressions of the Twentieth Century." Journal of Economic Literature, 46 (3): 669-84. DOI:

  • Xg94hp61t?file=thumbnail

    The files below demonstrate how to calibrate the neoclassical growth model and then solve the model numerically, using data from Finland as an example.

    BaseCaseCalibration.xls calibrates model parameters and derives a sequence of TFP values in the ‘calibration’ worksheet. The parameters are also saved in paramBase.txt, and the series of TFP values along with labor endowment and taxes are saved in dataBase.txt. The MATLAB program depressions.m uses these text files and solveModel.m to solve the model numerically. The output this program saves to output.xls can be used to generate the graphs in BaseCaseCalibration.xls.

    These files can be used to model any economy over any period by replacing the data in BaseCaseCalibration.xls and saving the results in the correct format to paramBase.txt and dataBase.txt. The files below contain an overview of the calibration procedures, the MATLAB programs, and instructions on using the files on your own data. More details can be found in the files themselves.

  • Description:

    Each chapter of the book is accompanied by a data file that contains all of the data used in the analysis. This collection also provides links to computer programs for applying the methodology.

    The worldwide Great Depression of the 1930s was a watershed for both economic thought and economic policymaking. It led to the belief that market economies are inherently unstable and to the revolutionary work of John Maynard Keynes. Its impact on popular economic wisdom is still apparent today.

    This book, which uses a common framework to study sixteen depressions, from the interwar period in Europe and America as well as from more recent times in Japan and Latin America, challenges the Keynesian theory of depressions. It develops and uses a methodology for studying depressions that relies on growth accounting and the general equilibrium growth model.

  • M039k4946?file=thumbnail
    Creator: Fisher, Jonas D.M. and Hornstein, Andreas

    Data supporting the chapter "The Role of Real Wages, Productivity, and Fiscal Policy in Germany’s Great Depression, 1928-37."

  • F4752g809?file=thumbnail
    Creator: Kehoe, Timothy J. and Prescott, Edward C.

    Data supporting the chapter "Great Depressions of the Twentieth Century."

  • Qz20ss48r?file=thumbnail
    Creator: Cole, Harold Linh, 1957- and Ohanian, Lee E.
    Series: Great depressions of the twentieth century
    Abstract: There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate whether New Deal cartelization policies designed to limit competition among firms and increase labor bargaining power can account for the persistence of the Depression. We develop a model of the intraindustry bargaining process between labor and firms that occurred with these policies, and embed that model within a multi-sector dynamic general equilibrium model. We find that New Deal cartelization policies are an important factor in accounting for the post-1933 Depression. We also find that the key depressing element of New Deal policies was not collusion per se, but rather the link between paying high wages and collusion.
    Keyword: New Deal, Great Depression, Competition, Cartels, Wages, and Collective bargaining
    Subject: D50 - General equilibrium and disequilibrium - General and J58 - Labor-management relations, trade unions, and collective bargaining - Public policy
  • Dv13zt259?file=thumbnail
    Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R.
    Series: Joint committee on business and financial analysis
    Abstract: This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time varying wedges that, at least on face value, look like time-varying productivity, labor taxes, and capital income taxes. We label the time varying wedges as efficiency wedges, labor wedges, and investment wedges. We use data to measure these wedges and then feed them back into the prototype growth model. We then assess the fraction of fluctuations accounted for by these wedges during the great depressions of the 1930s in the United States, Germany, and Canada. We find that the efficiency and labor wedges in combination account for essentially all of the declines and subsequent recoveries. Investment wedge plays at best a minor role.
    Keyword: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth
    Subject: O41 - One, Two, and Multisector Growth Models, O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
  • Pn89d658s?file=thumbnail
    Creator: Perri, Fabrizio. and Quadrini, Vincenzo.
    Series: Great depressions of the twentieth century
    Abstract: We analyze the Italian economy in the interwar years. In Italy, as in many other countries, the years immmediately after 1929 were characterized by a major slowdown in economic activity as non farm output declined almost 12. We argue that the slowdown cannot be explained solely by productivity shocks and that other factors must have contributed to the depth and duration of the the 1929 crisis. We present a model in which trade restrictions together with wage rigidities produce a slowdown in economic activity that is consistent with the one observed in the data. The model is also consistent with evidence from sectorial disaggregated data. Our model predicts that trade restrictions can account for about 3/4 of the observed slowdown while wage rigidity (monetary shocks) can account for the remaining fourth.
    Keyword: Depressions, Trade restrictions, Italy, and Wage rigidity
    Subject: N14 - Macroeconomics and monetary economics ; Growth and fluctuations - Europe : 1913- and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles