Nominal Wage Stickiness and Aggregate Supply in the Great Depression

Bernanke, Ben; Carey, Kevin

doi:10.2307/2946674

Cited by 120 publications

(96 citation statements)

References 9 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…3 There is also evidence suggesting that nominal wages adjust slowly to changes in prices and unemployment during deep recessions. In their empirical studies, Eichengreen and Sachs (1985) and Bernanke and Carey (1996) find that nominal wage rigidities contributed substantially to the fall in output during the Great Depression, in particular among countries belonging to the Gold Block. at the Eurozone periphery.…”

Section: Introductionmentioning

confidence: 99%

International Debt Deleveraging

Fornaro

2018

Journal of the European Economic Association

View full text Add to dashboard Cite

I provide a framework for understanding debt deleveraging in a group of financially integrated countries. During an episode of international deleveraging world consumption demand is depressed and the world interest rate is low, reflecting a high propensity to save. If exchange rates are allowed to float, deleveraging countries can depreciate their nominal exchange rate to increase production and mitigate the fall in consumption associated with debt reduction. The key insight of the paper is that in a monetary union this channel of adjustment is shut off, and therefore the falls in consumption demand and in the world interest rate are amplified. Hence, monetary unions are especially prone to hit the zero lower bound on the nominal interest rate and enter a liquidity trap during deleveraging. In a liquidity trap deleveraging gives rise to a union-wide recession, which is particularly severe in high-debt countries. The model suggests several policy interventions that mitigate the negative impact of deleveraging on output in monetary unions.JEL Classification Numbers: E31, E44, E52, F32, F34, F41, G01, G15.

show abstract

Section: Introductionmentioning

confidence: 99%

International Debt Deleveraging

Fornaro

2018

Journal of the European Economic Association

View full text Add to dashboard Cite

show abstract

“…5, No. 11;2013 ineffectiveness of monetary policy follows from the fact that the nominal interest rate is now at the zero lower bound and monetary policy is, therefore, unable to influence the nominal interest rate.…”

Section: Zero Lower Bound Is Bindingmentioning

confidence: 99%

“…5, No. 11;2013 to this long-run equilibrium as the deflationary equilibrium. Real output is equal to potential output, Y t+s =Ȳ t+s , real interest rate is equal to the natural rate of interest, r t+s =ϱ, and nominal interest rates are zero forever, i t+s =0.…”

Section: Definition 2 a Long-run Equilibrium Is Any Equilibrium Sequmentioning

confidence: 99%

“…5, No. 11;2013 annual inflation for country i during five-year period t, and ε it represents an i.i.d. normal disturbance term.…”

Section: Reinterpretation Of Empirical Findingsmentioning

confidence: 99%

“…There is a tight link between deflation and depression during the Great Depression years and many believe that deflation contributed to the severe output losses in the U.S. and other countries between 1929 and 1932 (Bernanke & Carey, 1996;Eichengreen & Sachs, 1985). Outside of the Great Depression years, however, the empirical link between deflation and depression is much weaker (Atkeson & Kehoe, 2004;Benhabib & Spiegel, 2009).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The Friedman Rule and the Zero Lower Bound

Buttet¹

2013

IJEF

View full text Add to dashboard Cite

We explain why central banks rarely implement the Friedman rule by studying the properties of a simple New Keynesian dynamic macroeconomic model that is generalized to incorporate the zero lower bound on nominal interest rates. We show that two long-run equilibria exist, one stable and the other unstable, and we characterize the conditions under which the economy plunges into a deflation-induced depression following a contractionary demand shock. As long as the sum of the inflation rate and the natural real interest rate stays positive, the economy converges back to the long-run stable equilibrium, even when the zero lower bound is initially binding. On the other hand, a deflationary spiral starts when the sum of the inflation rate and the natural rate of interest becomes negative. The Friedman rule, which calls for a small dose of anticipated deflation, takes the sum of the inflation rate and the natural real interest rate uncomfortably close to zero and thereby raises the probability of the economy plunging into a depression. Our theoretical results also shed light onto the different correlation values between inflation and economic growth in the data.

show abstract

A Silver Lifeboat, not Silver Fetters: Why and how the Silver Standard Insulated China from the 1929 Great Depression

Lai

2015

J of Applied Econometrics

View full text Add to dashboard Cite

Summary We use counterfactual simulations based on an estimated dynamic stochastic general equilibrium model to demonstrate why China was affected less than other major countries during the first two years of the Great Depression. We show that being on a silver standard insulated China from the adverse consequences of the Great Depression by saving the country both from a tightening of monetary conditions and from a detrimental internal deflation. Without the insulation of the silver standard, China might have suffered from a cumulative output loss of between 11% and 23%, and its inflation might have become deflation. Copyright © 2015 John Wiley & Sons, Ltd.

show abstract

Nominal Wage Stickiness and Aggregate Supply in the Great Depression

Cited by 120 publications

References 9 publications

International Debt Deleveraging

International Debt Deleveraging

The Friedman Rule and the Zero Lower Bound

A Silver Lifeboat, not Silver Fetters: Why and how the Silver Standard Insulated China from the 1929 Great Depression

Contact Info

Product

Resources

About