2002-03-25Buch DOI: 10.18452/3483
Did Sunspot Cause the Great Depression?
We apply a dynamic general equilibrium model to the period of the Great Depression. In particular, we examine a modi¯cation of the real business cycle model in which the possibility of indeterminacy of equilibria arises. In other words, agents' self-ful¯lling expectations can serve as a primary impulse behind °uctuations. We find that the model, driven only by these measured sunspot shocks, can explain well the entire Depression era. That is, the decline from 1929-1932, the subsequent slow recovery, and the recession that occurred in 1937-1938.
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