Emerald Management Review:
Great expectations and the end of the Depression

Abstract:

Purpose - To show that a shift in expectations ended the Great Depression in the USA.

Design/methodology/approach - Cites prior studies of Franklin D. Roosevelt. Chronicles the events of 1933, doubling government consumption and investment using deficit financing, and printing money in order to raise prices. Examines economic variables to explain the impact of these policies. Models the Roosevelt regime as a repeated game setting in a dynamic stochastic general equilibrium (DSGE) model, focusing on the Markov Perfect Equilibria (MPE). Takes fiscal data from 1930 to 1941, and looks at how fiscal policy was determined under Hoover and Roosevelt.

Findings - Finds expectations were changed by the radical switch announcement by Roosevelt to eliminate the Hoover dogmas and deflation, in favour of reflation, thus committing to future policy by issuing government debt that would be repaid through taxation. Shows that the abolition of the gold standard was necessary but insufficient.

Practical implications - Identifies some obvious policy options for competent governments in 2009.

Originality/value - Presents a well-timed review of the Great Depression.

Keywords:

Article Type:

Research paper

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