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THE ROLE OF PREFERENCE SHOCKS AND CAPITAL UTILIZATION IN THE GREAT DEPRESSION *
Author(s) -
Weder Mark
Publication year - 2006
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2006.00412.x
Subject(s) - economics , great depression , preference , depression (economics) , capital (architecture) , production (economics) , variable (mathematics) , scale (ratio) , monetary economics , macroeconomics , microeconomics , mathematics , geography , mathematical analysis , archaeology , cartography
The article examines the proposition that preference shocks play a central role in our understanding of the Great Depression. I identify a series of unusually large negative shocks that destabilized the U.S. economy during the 1930s. When the artificial economy is paired with variable capital utilization and mildly increasing returns to scale in production, it is able to account for most of the decline in economic activity and it predicts a tepid recovery.