Essay Plan topic 4 End of Deflation in US

main recovery mechanisms in US from great depression

• Monetary Policy shift

• Expectations and Regime Shift

• Fiscal Poilcy shift

• Microeconomics changes in New Deal

Which of the main mechanisms of great depression escape were the most important

• Monetary Policy

• Expectations and regime

Main argument of Expectations and Regime Change

• roosevelt didn’t have to spend or do a lot as the expectation he would do whatever it takes was enough

What does Temin and Wigmore (1990) argue and how

• announcement of National Industrial recovery act signalled no longer commited to deflation

• people shifted from cash to stocks showing fears in deflation had eased

• Tobins q rises leads to higher AD

what is tobin q and which paper says it

• temin uses it to show higher private investment due to better expectations

• q= market value of capital/replacement cost of capital

What does Eggertson (2008) argue

• shift in great depression only happend due to expectations changing

• Used New keynesian DGSE model to show this

Result of DGSE model

• ¾ of the output recovery seen in 1933-37 caused by changes in expectations

What does Jalil and rua (2016)

• analyzes text from 5 newspapers

• terms like inflation increased in frequency

• expectations coincided with changes in spending on durable goods.

why was higher spending on durable goods important

• strong effect on AD

What does Romer (1992) argue

• argues that monetary expanision had a much larger effect on output than fiscal policies

what are romer’s methodologies and stats

• calculates money supply rose by 42%

• uses counterfactual analysis to show recovery would be drastically different with no monterary policy compared to fiscal policy

How does fishback (2010) support romer

• monetary expansion correlates strongly with rebound in production, employment and farm prices

What does fishback say about fiscal policy

• some effects but small

• mainly localised benfits and local job creation

What arguements are made by Cole and ohanion (2004)

• labour market regulation of FDR prolonged the depression

What is the mechanism through which labour market policies prolonged the depression

• acts like nira encouraged cartelisation which discouraged investment

what is cartelisation

• this case involves forming of unions which can cause higher unemployment and make it harder for firms to invest

stat from cole and ohanion

• labour market distortions could have accounted for 6+ years of below trend growth output

How does Eggertson (2012) rebuttle the labour market argument

• using dgse model with sticky wages eggertson shows that reflation expectations of labour market policies outweighed the small labour market rigidities

Stat for eggerton 2012

labour market rigidities only accounted for 2-4% lower output