Could Stable Money Have Averted The Great Contraction?
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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.
Published: Economic Inquiry, vol. XXXIII, no. 3, pp. 484-505, (July 1995).
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