DP3716 Some Observations on the Great Depression in Germany

Author(s): Mark Weder
Publication Date: January 2003
Keyword(s): applied dynamic General Equilibrium, demand shocks, germany, great depression
JEL(s): E32, N14
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3716

This Paper evaluates the role of the demand side during the Great Depression in Germany. From Euler equation residuals we are able to identify a series of contractionary demand shocks that pounded the German economy from 1929-32. We apply the detrimental preference innovations to a dynamic general equilibrium model and find that size and order of shocks can generate a pattern that can explain the lion?s share of the decline in economic activity. The artificial economy also predicts a swift recovery after 1932, thereby questioning significant effects of Nazi economic policy.