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Great Expectations and the End of the Depression

Name: Great Expectations and the End of the Depression
Creator: Gauti B. Eggertsson
Keywords: Dynamisches Gleichgewicht, Geldpolitik, Mikroökonomische Fundierung, jel:D84, ddc:330, jel:E62, 05 social sciences, 1. No poverty, Neukeynesianische Makroökonomik, Depressions ; Gold standard ; Price levels ; Rational expectations (Economic theory) ; Economic policy

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type , Research , Preprint 01 Jan 2005Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

Authors: Gauti B. Eggertsson;

doi: 10.2139/ssrn.873852 , 10.1257/aer.98.4.1476

handle: 10419/60661

Great Expectations and the End of the Depression

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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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Federal Reserve Bank of New York
United States

Keywords

Dynamisches Gleichgewicht, Geldpolitik, Mikroökonomische Fundierung, ddc:330, Neukeynesianische Makroökonomik, Depressions ; Gold standard ; Price levels ; Rational expectations (Economic theory) ; Economic policy, Finanzpolitik, Diskretionäre Politik, deflation, Great Depression, regime change, zero interest rates, E52, E63, USA, jel: jel:D84, jel: jel:E62, jel: jel:E52, jel: jel:N42, jel: jel:N12

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Optimal Monetary and Fiscal Policy under Discretion in the New Keynesian Model: A Technical Appendix to 'Great Expectations and the End of the Depression'
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