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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.
12.01.2009ISSN 2573-7953 WP 09-11Revisions WP 09-11R, WP 09-11R2DOI 10.26509/frbc-wp-200911
Keywords great depression, sectoral models, sticky wages
JEL Classification Codes E20, E30, E50

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

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. https://doi.org/10.26509/frbc-wp-200911