Transcript Slide 1

EH447, 08/09
Great Depressions in Economic
History
Introduction
Albrecht Ritschl
Course outline
Week 2-1:
Introduction
Weeks 2-2 through 6: The U.S.
Depression
Weeks 7-8:
Europe and the
Great Depression
Weeks 9-10:
Project
presentations
Summer Term:
Exam
Course Outline (cont’d)
Week 2-2 Hayek v Friedman: Was Money Too Tight Or Too Strict?
Week 3-1 Revisiting the Monetary Hypothesis
Week 3-2 A Housing Bubble? Keynesianism v Fisher
Week 4-1 A Bubble in the 1929 Stock Market?
Week 4-2 It’s Crunch Time, Ben: The Financial Accelerator
Week 5-1 Revisiting the Financial Accelerator Hypothesis
Week 5-2 Animal Spirits? The Keynesian Hypothesis Revisited
Week 6-1 Labour Markets and the Great Depression: the
Minnesota View
Week 6-2 Monopoly Power and Trade Unionism: A Modified
Supply Side View
Course Outline (Cont’d)
Weeks 7-8: Europe and the Great Depression
Week 7-1 Europe and the Great Depression
Week 7-2 A Tale of Two Recoveries: the U.S. and Germany, 19331937
Week 8-1 Europe’s Great Depression, 1920-1960; A Long Term
View
Week 8-2 The Macroeconomic Effects of the two World Wars
Weeks 9-10: Project Presentations by Students
Course Material
 Coming soon: on Moodle
 To be mirrored on my personal website
at the LSE
Figure 1: WE GDP Per Capita
14,000
12,000
Total 12 Western Europe
10,000
1.95 % Trend
8,000
6,000
4,000
2,000
1973
1969
1965
1961
1957
1953
1949
1945
1941
1937
1933
1929
1925
1921
1917
1913
1909
1905
0
1901
1990 Gheary Khamis $ (Maddison)
1901-73
Observations
 The trend line is “counterfactual”,
derived from theory
 Neoclassical Growth Theory: steady
state growth of output per capita is
around 2 % per year
 In a linear chart, this yields an
exponential function with everincreasing slope
1973
1969
1965
1961
1957
1953
1949
1945
1941
1937
1933
1929
1925
1921
1917
1913
1909
1905
1901
1990 Gheary Khamis $ (Maddison)
Figure 1: WE GDP Per Capita
1901-73
100,000
Total 12 Western Europe
1.95 % Trend
1,000
Observations
 Logarithmic y scale: constant percentage
growth is translated into constant slope
 Exponential functions now become straight
lines
 The 2% trend is thus now a straight upward
sloping line
 Neoclassical Growth Theory: slope of this line
is around 2 % per year (here a bit smaller)
 Depressions and upswings look a bit
compressed
Figure 2: Europe's Great Depression and
Recovery, 1913-1973:
WE GDP per Capita Relative to 1.95 % Trend
120
100
60
40
1932
1921
1945/6
20
2001
1997
1993
1989
1985
1981
1977
1973
1969
1965
1961
1957
1953
1949
1945
1941
1937
1933
1929
1925
1921
1917
1913
1909
1905
0
1901
1913=100
80
Deviations from Trend
 Now have trend as horizontal line
 Look at cycles as deviation from trend
Surprising result: find Europe in recession
from 1920 to1945
Other important trends
 First (logarithmic) differences
 Hodrick/Prescott filter
 Bandpass filters
 In all cases, define cycles as deviations
from trend (we will see this in more
detail)
 Vs. NBER definition: recession if
negative rates of change in two
subsequent quarters
The special case of Britain
 Britain the first industrializer
 Growth and productivity slowdown in
late 19th century, subsequent
acceleration
 Low British trend growth 1920-80 drags
down European average
 Reversed if allow for structural breaks,
but highly doubtful concept
Figure 3: Jeremy Clarkson's Nightmare
- WE GDP Per Capita Relative to the UK 120
100
Extrapolated Trend?
60
40
20
1918
1934 1946
2002
1996
1990
1984
1978
1972
1966
1960
1954
1948
1942
1936
1930
1924
1918
1912
1906
1900
1894
1888
1882
1876
0
1870
UK = 100
80
Chronic Depression:
British Per Capita GNP and Trend, 1919-2004
25,000
20,000
15,000
Y/ N
1.6 % Trend 1918
10,000
2.0 % Trend 1947
5,000
1919
1924
1929
1934
1939
1944
1949
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
0
Chronic Depression:
British Per Capita GNP and Trend, 1919-2004
Y/ N
1.6 % Trend 1918
2.0 % Trend 1947
1919
1924
1929
1934
1939
1944
1949
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
1,000
2003
1998
1993
1988
1983
1978
1973
1968
1963
1958
1953
1948
1943
1938
1933
1928
1923
1918
British Y / N Relative to 1.6% Trend
(Percent)
120
100
80
60
40
20
0