NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Could Stable Money Have Averted The Great Contraction?

Michael D. Bordo, Ehsan U. Choudhri, Anna J. Schwartz

NBER Working Paper No. 4481 (Also Reprint No. r2003)
Issued in September 1995
NBER Program(s):   ME

We test the hypothesis that the Great Contraction would have been attenuated had the Fed not allowed the money stock to decline. We do so by simulating a model that estimates separate relations for output and the price level and assumes that output and price dynamics are not especially sensitive to policy changes. The simulations include a strong and a weak form of Friedman's constant money growth rule. The results support the hypothesis that the Great Contraction would have been mitigated and shortened had the Fed followed a constant money growth rule.

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Published: Economic Inquiry, vol. XXXIII, no. 3, pp. 484-505, (July 1995).

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