TY  - JOUR
AU  - Landon-Lane,John
AU  - White,Eugene N.
AU  - Klug,Adam
TI  - How Could Everyone Have Been So Wrong? Forecasting the Great Depression with the Railroads
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9011
PY  - 2002
Y2  - June 2002
UR  - http://www.nber.org/papers/w9011
L1  - http://www.nber.org/papers/w9011.pdf
N1  - Author contact info:
John Landon-Lane
Department of Economics
75 Hamilton Street
Rutgers University
College Avenue Campus
New Brunswick, NJ  08901-1248
E-Mail: lane@econ.rutgers.edu

Eugene N. White
Department of Economics
Rutgers University
75 Hamilton Street
New Brunswick, NJ 08901-1248
Tel: 732-932-7363
Fax: 732/932-7416
E-Mail: white@economics.rutgers.edu
AB  - Contemporary observers viewed the recession that began in the summer of 1929 as nothing extraordinary. Recent analyses have shown that the subsequent large deflation was econometrically forecastable, implying that a driving force in the depression was the high expected real interest rates faced by business.  Using a neglected data set of forecasts by railroad shippers, we find that business was surprised by the magnitude of the great depression.  We show that an ARIMA or Holt-Winters model of railroad shipments would have produced much smaller forecast errors than those indicated by the surveys.   The depth and duration of the depression was beyond the experience of business, which appears to have believed that recovery would happen quickly as in previous recessions.  This failure to anticipate the collapse of the economy suggests roles for both high real rates of interest and a debt deflation in the propagation of the depression.
ER  -