| Abstract: | This paper provides a new account of the recovery from the Great Depression in the second quarter of 1933. Our argument is that President Roosevelt established a new macroeconomic policy regime shortly after his inauguration in March 1933 that altered expectations and stimulated investment. The key to this change was Roosevelt's devaluation of the dollar and the resulting rise in farm prices and incomes. Hoover had been a financial conservative, adhering to the gold standard, a strong dollar, and fiscal orthodoxy. Roosevelt broke with this ideology, devaluing the dollar within 6 weeks of his inauguration, promoting the New Deal, and championing the virtues of inflation. The devaluation of the dollar was the single biggest signal that the iron grip of the gold standard had been broken. The New Deal emerged in the course of 1933 and reinforced the change in regime symbolized by devaluation. |
