TY  - JOUR
AU  - Bordo,Michael D.
AU  - Erceg,Christopher J.
AU  - Evans,Charles N.
TI  - Money, Sticky Wages, and the Great Depression
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6071
PY  - 1997
Y2  - June 1997
UR  - http://www.nber.org/papers/w6071
L1  - http://www.nber.org/papers/w6071.pdf
N1  - Author contact info:
Michael D. Bordo
Department of Economics
Rutgers University
New Jersey Hall
75 Hamilton Street
New Brunswick, NJ 08901
Tel: 732/822-7152
Fax: 732/932-7416
E-Mail: bordo@econ.rutgers.edu

Christopher Erceg
The Federal Reserve Board
Mail Stop 20
20th and C Street, N.W.
Washington, D.C.   20551
E-Mail: christopher.erceg@frb.gov

Charles Evans
Federal Reserve Bank of Chicago
2nd floor
230 S. LaSalle Street
Chicago, IL 60604
Tel: 312-322-5001
E-Mail: charles.l.evans@chi.frb.org
AB  - This paper examines the ability of a simple stylized general equilibrium model that incorporates nominal wage rigidity to explain the magnitude and persistence of the Great Depression in the United States. The impulses to our analysis are money supply shocks.  The Taylor contracts model is surprisingly successful in accounting for the behavior of major macroaggregates and real wages during the downturn phase of the Depression, i.e., from 1929:3 through mid-1933.  Our analysis provides support for the hypothesis that a monetary contraction operating through a sticky wage channel played a significant role in accounting for the downturn, and also provides an interesting refinement to this explanation.  In particular, both the absolute severity of the Depression's downturn and its relative severity compared to the 1920-21 recession are likely attributable to the price decline having a much larger unanticipated component during the Depression, as well as less flexible wage-setting practices during this latter period.  Another finding casts doubt on explanations for the 1933-36 recovery that rely heavily on the substantial remonetization that began in 1933.
ER  -