TY  - JOUR
AU  - Cecchetti,Stephen G.
TI  - Understanding the Great Depression: Lessons for Current Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6015
PY  - 1997
Y2  - April 1997
UR  - http://www.nber.org/papers/w6015
L1  - http://www.nber.org/papers/w6015.pdf
N1  - Author contact info:
Stephen G. Cecchetti
Monetary and Economic Department
Bank for International Settlements
Centralbahnplatz 2
4002 Basel
SWITZERLAND
Tel: +41 61 280 8350
Fax: +41 61 280 9113
E-Mail: stephen.cecchetti@bis.org
AB  - Over the four years beginning in the summer of 1929, financial markets, labor markets and goods markets all virtually ceased to function.  Throughout this, the government policymaking apparatus seemed helpless.  Since the end of the Great Depression, macroeconomists have labored diligently in an effort to understand the circumstances that led to the wholesale collapse of the economy.  What lessons can we draw from our study of these events? In this essay, I argue that the Federal Reserve played a key role in nearly every policy failure during this period, and so the major lessons learned from the Great Depression concern the function of the central bank and the financial system.  In my view, there is now a broad consensus supporting three conclusions.  First, the collapse of the finance system could have been stopped if the central bank had properly understood its function as the lender of last resort.  Second, deflation played an extremely important role deepening the Depression.  And third, the gold standard, as a method for supporting a fixed exchange rate system, was disastrous.
ER  -