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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