A Reply to Steven Horwitz's Commentary on "Great Expectations and the End of the Depression"
2010; Atlas Network; Volume: 7; Issue: 3 Linguagem: Inglês
ISSN
1933-527X
Autores Tópico(s)Market Dynamics and Volatility
ResumoSteven Horwitz’s commentary on my article “Great Expectations and the End of the Depression” (AER, September 2008) appeared in the September 2009 issue of Econ Journal Watch (Horwitz 2009). I thank him for drawing attention to the article. I also thank the editors for providing this forum for discussing the paper. This note responds to some of the issues raised. To start with, let me summarize the paper Horwitz is commenting on. The AER article (Eggertsson 2008) proposed that the recovery from the Great Depression in 1933-37 was driven by a shift in expectations. Expectations about prices turned from deflationary to inflationary, while expectations about output turned from contractionary to expansionary. This shift was triggered by a policy regime change characterized by deliberate policy actions by Franklin Delano Roosevelt (FDR). The policy actions included abolishing the gold standard and explicitly aiming for reflating the price level to pre-Depression levels. Furthermore the policy actions included a vigorous fiscal expansion, driven by an increase in government spending and budget deficits. The main contribution of the article is
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