Working Paper: CEPR ID: DP3716
Authors: Mark Weder
Abstract: This Paper evaluates the role of the demand side during the Great Depression in Germany. From Euler equation residuals we are able to identify a series of contractionary demand shocks that pounded the German economy from 1929-32. We apply the detrimental preference innovations to a dynamic general equilibrium model and find that size and order of shocks can generate a pattern that can explain the lion?s share of the decline in economic activity. The artificial economy also predicts a swift recovery after 1932, thereby questioning significant effects of Nazi economic policy.
Keywords: applied dynamic general equilibrium; demand shocks; Germany; Great Depression
JEL Codes: E32; N14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand shocks (E39) | economic downturn (F44) |
| demand shocks (E39) | real GNP (E10) |
| demand shocks (E39) | consumption (E21) |
| demand shocks (E39) | investment (G31) |
| demand shocks (E39) | economic recovery (E65) |