Working Paper: NBER ID: w3829
Authors: Christina D. Romer
Abstract: This paper examines the role of aggregate demand stimulus in ending the Great Depression. A simple calculation indicates that nearly all of the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. Huge gold inflows in the mid- and late-1930s swelled the U.S. money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. The finding that monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942.
Keywords: Great Depression; Monetary Policy; Aggregate Demand; Economic Recovery
JEL Codes: E32; E52; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary expansion (E50) | economic recovery (E65) |
| gold inflows (F21) | monetary expansion (E50) |
| monetary expansion (E50) | lower real interest rates (E43) |
| lower real interest rates (E43) | increased investment spending (E22) |
| monetary expansion (E50) | real GNP (E10) |