Working Paper: NBER ID: w2639
Authors: Christina D. Romer
Abstract: This paper argues that the collapse of stock prices in October 1929 generated temporary uncertainty about future income which caused consumers to forego purchases of durable and semidurable goods in late 1929 and much of 1930. Evidence that the stock market crash generated uncertainty is provided by the decline in confidence expressed by contemporary forecasters. Evidence that this uncertainty affected consumer behavior is provided by the fact that spending on consumer durables and semidurables declined immediately following the Great Crash and by the fact that there is a negative historical relationship between stock market variability and the production of consumer durables in the prewar era.
Keywords: Great Depression; Stock Market Crash; Consumer Behavior; Economic Fluctuations
JEL Codes: E32; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stock market crash in October 1929 (G01) | Increase in uncertainty about future income (D89) |
| Increase in uncertainty about future income (D89) | Decrease in consumer spending on durable goods (D12) |
| Stock market crash in October 1929 (G01) | Decrease in consumer spending on durable goods (D12) |