Was the Great Depression a low-level equilibrium?

John Dagsvik, Boyan Jovanovic

    Research output: Contribution to journalArticle

    Abstract

    If the Great Depression indeed was a bad equilibrium, then there was another, better equilibrium that the economy might have been in, but wasn't. This is the multiple equilibrium explanation. But another explanation is that equilibrium was unique, and that there were especially bad real shocks that caused output and employment to fall so much. The data tentatively support the second story - the Depression can not be blamed on a massive coordination failure. This conclusion hinges, however, on the assumption that the money supply did not act as an equilibrium-selection device. But since in the U.S. at least, money is not the best leading indicator, there are more natural variables that could have played this role, and we find this assumption reasonable. If this is correct, our results offer little, if any, support to the view that the Depression was the result of a coordination failure.

    Original languageEnglish (US)
    Pages (from-to)1711-1729
    Number of pages19
    JournalEuropean Economic Review
    Volume38
    Issue number9
    DOIs
    StatePublished - 1994

    Fingerprint

    Great Depression
    Coordination failure
    Equilibrium selection
    Leading indicators
    Money supply
    Multiple equilibria

    Keywords

    • Business cycles
    • Coordination failure

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    Was the Great Depression a low-level equilibrium? / Dagsvik, John; Jovanovic, Boyan.

    In: European Economic Review, Vol. 38, No. 9, 1994, p. 1711-1729.

    Research output: Contribution to journalArticle

    Dagsvik, John ; Jovanovic, Boyan. / Was the Great Depression a low-level equilibrium?. In: European Economic Review. 1994 ; Vol. 38, No. 9. pp. 1711-1729.
    @article{448975affc5b45d2a1b8fa0b45fee5ce,
    title = "Was the Great Depression a low-level equilibrium?",
    abstract = "If the Great Depression indeed was a bad equilibrium, then there was another, better equilibrium that the economy might have been in, but wasn't. This is the multiple equilibrium explanation. But another explanation is that equilibrium was unique, and that there were especially bad real shocks that caused output and employment to fall so much. The data tentatively support the second story - the Depression can not be blamed on a massive coordination failure. This conclusion hinges, however, on the assumption that the money supply did not act as an equilibrium-selection device. But since in the U.S. at least, money is not the best leading indicator, there are more natural variables that could have played this role, and we find this assumption reasonable. If this is correct, our results offer little, if any, support to the view that the Depression was the result of a coordination failure.",
    keywords = "Business cycles, Coordination failure",
    author = "John Dagsvik and Boyan Jovanovic",
    year = "1994",
    doi = "10.1016/0014-2921(94)90047-7",
    language = "English (US)",
    volume = "38",
    pages = "1711--1729",
    journal = "European Economic Review",
    issn = "0014-2921",
    publisher = "Elsevier",
    number = "9",

    }

    TY - JOUR

    T1 - Was the Great Depression a low-level equilibrium?

    AU - Dagsvik, John

    AU - Jovanovic, Boyan

    PY - 1994

    Y1 - 1994

    N2 - If the Great Depression indeed was a bad equilibrium, then there was another, better equilibrium that the economy might have been in, but wasn't. This is the multiple equilibrium explanation. But another explanation is that equilibrium was unique, and that there were especially bad real shocks that caused output and employment to fall so much. The data tentatively support the second story - the Depression can not be blamed on a massive coordination failure. This conclusion hinges, however, on the assumption that the money supply did not act as an equilibrium-selection device. But since in the U.S. at least, money is not the best leading indicator, there are more natural variables that could have played this role, and we find this assumption reasonable. If this is correct, our results offer little, if any, support to the view that the Depression was the result of a coordination failure.

    AB - If the Great Depression indeed was a bad equilibrium, then there was another, better equilibrium that the economy might have been in, but wasn't. This is the multiple equilibrium explanation. But another explanation is that equilibrium was unique, and that there were especially bad real shocks that caused output and employment to fall so much. The data tentatively support the second story - the Depression can not be blamed on a massive coordination failure. This conclusion hinges, however, on the assumption that the money supply did not act as an equilibrium-selection device. But since in the U.S. at least, money is not the best leading indicator, there are more natural variables that could have played this role, and we find this assumption reasonable. If this is correct, our results offer little, if any, support to the view that the Depression was the result of a coordination failure.

    KW - Business cycles

    KW - Coordination failure

    UR - http://www.scopus.com/inward/record.url?scp=0038174614&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=0038174614&partnerID=8YFLogxK

    U2 - 10.1016/0014-2921(94)90047-7

    DO - 10.1016/0014-2921(94)90047-7

    M3 - Article

    AN - SCOPUS:0038174614

    VL - 38

    SP - 1711

    EP - 1729

    JO - European Economic Review

    JF - European Economic Review

    SN - 0014-2921

    IS - 9

    ER -