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Working Paper

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.

Suggested Citation

Amaral, Pedro S., and James C. MacGee. 2009. “A Multisectoral Approach to the U.S. Great Depression.” Federal Reserve Bank of Cleveland, Working Paper No. 09-11.