NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Supply-Side Policies in the Depression: Evidence from France

Jérémie Cohen-Setton, Joshua K. Hausman, Johannes F. Wieland

NBER Working Paper No. 22140
Issued in March 2016
NBER Program(s):DAE, EFG, ME

The effects of supply-side policies in depressed economies are controversial. We shed light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented mandatory wage increases and hours restrictions. Deflation ended but output stagnated. We present time-series and cross-sectional evidence that these supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one-sector new Keynesian model and with a medium scale, multi-sector model calibrated to match our cross-sectional estimates. We conclude that the new Keynesian model is a poor guide to the effects of supply-side shocks in depressed economies.

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Document Object Identifier (DOI): 10.3386/w22140

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