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.