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A Multisectoral Approach to the U.S. Great Depression


We quantify the role of contractionary monetary shocks and wage rigidities in the U.S. Great Contraction. While the average economy-wide real wage varied little over 1929–33, real wages did rise significantly in some industries. We calibrate a two-sector model with intermediates to the 1929 U.S. economy, where wages in one sector adjust slowly. We find that nominal wage rigidities can account for less than a fifth of the fall in GDP over 1929–33. Intermediate linkages play a key role, as the output decline in our benchmark is roughly half as large as in our two-sector model without intermediates.

Keywords: Great Depression, Sectoral Models, Sticky Wages.

JEL Classification: E20, E30, E50.


Suggested citation: Amaral, Pedro S., and James C. MacGee, 2009. “Re-examining the Role of Sticky Wages in the U.S. Great Contraction: A Multisectoral Approach,” Federal Reserve Bank of Cleveland, Working Paper, no. 09-11.

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