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Eggertsson, Gauti B. 2008. "Great Expectations and the End of the Depression."
,
98(4): 1476-1516.
Show Article Details
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-
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