Working Paper: NBER ID: w18823
Authors: Harold L. Cole; Lee E. Ohanian
Abstract: This study exploits panel data from 18 countries to assess the contributions of cartelization policies, monetary shocks, and productivity shocks on macroeconomic activity during the Great Depression. To construct a parsimonious and common model framework, we use the fact that many cartel policies are observationally equivalent to a country-specific labor tax wedge. We estimate a monetary DSGE model with cartel wedges along with productivity and monetary shocks. Our main finding is that cartel policy shocks account for the bulk of the Depression in the countries that adopted significant cartel policies, including the large depressions in the U.S., Germany, Italy, and Australia, and that the estimated cartel policy shocks plausibly coincide with the actual evolution of policies in these countries. In contrast, cartel policy shocks in the countries that did not significantly change policies were small and account for little of their Depressions.
Keywords: cartelization; Great Depression; monetary shocks; productivity shocks
JEL Codes: F1; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cartel policy shocks (E65) | Economic downturn during the Great Depression (N12) |
| Cartel policy shocks (E65) | Employment changes in cartelized countries (F66) |
| Cartel policy shocks (E65) | Change in labor (J29) |
| Cartel policy shocks (E65) | Change in output (O49) |
| Cartel policy shocks + Monetary shocks (E39) | Economic downturn (F44) |
| Countries without cartel policies (F13) | Small cartel shocks (D43) |
| Monetary and productivity shocks (E39) | Employment changes in non-cartel countries (L49) |