Discussion Paper Details

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Title: Did Sunspot Forces Cause the Great Depression?

Author(s): Sharon G Harrison and Mark Weder

Publication Date: March 2002

Keyword(s): dynamic general equilibrium, great depression and sunspots

Programme Area(s): International Macroeconomics

Abstract: We apply a dynamic general equilibrium model to the period of the Great Depression. In particular, we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises. In other words, agents' self-fulfilling expectations can serve as a primary impulse behind fluctuations. We find that the model, driven only by these measured sunspot shocks, can explain well the entire Depression era; that is, the decline from 1929-32, the subsequent slow recovery and the recession that occurred in 1937-38.

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Bibliographic Reference

Harrison, S and Weder, M. 2002. 'Did Sunspot Forces Cause the Great Depression?'. London, Centre for Economic Policy Research.