Did sunspot forces cause the Great Depression? |
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Authors: | Sharon G. Harrison Mark Weder |
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Affiliation: | a Department of Economics, Barnard College, Columbia University, 3009 Broadway, New York, NY 10027, USA b CEPR and Department of Economics, Humboldt University Berlin, Spandauer Str. 1, 10178 Berlin, Germany c University of Adelaide, Australia |
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Abstract: | We apply a dynamic general equilibrium model to the period of the U.S. Great Depression. In particular, we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises. In other words, agents’ self-fulfilling expectations can serve as a primary impulse behind fluctuations. We find that the model, driven only by these measured sunspot shocks, can explain well the entire Depression era. That is, the decline from 1929 to 1932, the subsequent slow recovery, and the recession that occurred in 1937-1938. |
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Keywords: | E32 N12 |
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