DP3716 | Some Observations on the Great Depression in Germany

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23/01/2003

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Abstract

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.