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American Economic Review

Vol. 98, No. 4, September 2008

Great Expectations and the End of the Depression Gauti B. Eggertsson
Article Citation
Eggertsson, Gauti B. 2008. "Great Expectations and the End of the Depression." American Economic Review, 98(4): 1476–1516.
DOI:10.1257/aer.98.4.1476
Abstract
This paper suggests that the US recovery from the Great Depression was driven by a shift in expectations. This shift was caused by President Franklin Delano Roosevelt's policy actions. On the monetary policy side, Roosevelt abolished the gold standard and -- even more importantly -- announced the explicit objective of inflating the price level to pre-Depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending, which made his policy objective credible. These actions violated prevailing policy dogmas and initiated a policy regime change as in Sargent (1983) and Temin and Wigmore (1990). The economic consequences of Roosevelt are evaluated in a dynamic stochastic general equilibrium model with nominal frictions. (JEL D84, E52, E62, N12, N42)

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Authors

Eggertsson, Gauti B. (Federal Reserve Bank of New York)

JEL Classifications

D84: Expectations; Speculations
E52: Monetary Policy
E62: Fiscal Policy
N12: Economic History: Macroeconomics; Growth and Fluctuations: U.S.; Canada: 1913-
N42: Economic History: Government, War, Law, and Regulation: U.S.; Canada: 1913-