Skip to main content Accessibility help
×
Home

Technology Shocks and the Great Depression

  • Shingo Watanabe (a1)

Abstract

Standard productivity measures indicate large fluctuations in technology during the Great Depression. This article's historical technology series (1892–1966), controlled for aggregation effects, varying input utilization, non-constant returns, and imperfect competition, does not indicate technology regress such that could trigger the downturn. In contrast, technology improvements in the recovery were so rapid that, over the whole Great Depression period, technology growth was highest among pre-WWII decades. This article also finds that output changed little and inputs fell when technology improved in the pre-WWII period. Real-business-cycle models have difficulty in explaining pre-WWII business cycles characterized by such responses.

Copyright

Footnotes

Hide All

This article is a substantially revised version of the second chapter of my doctoral dissertation submitted to the University of Michigan. I am grateful to my primary advisor, Miles Kimball, for his help, advice, and encouragement. Thanks to the anonymous referees, Ruediger Bachman, Tyler Shumway, and Dmitriy Stolyarov. All remaining errors are my own. The opinions expressed in this article are my own and do not necessarily reflect those of the Bank of Japan.

Footnotes

References

Hide All
Alexopoulos, Michelle, and Cohen, Jon. ‘‘Measuring Our Ignorance, One Book at a Time: New Indicators of Technological Change, 1909–1949.” Journal of Monetary Economics 56, no. 4 2009: 450–70.
Balke, Nathan S., and Gordon, Robert J.. “The Estimation of Prewar Gross National Product: Methodology and New Evidence.” Journal of Political Economy 97, no. 1 1989: 3992.
Barsky, Robert B., and Bradford de Long, J.. “Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard.” Quarterly Journal of Economics 106, no. 3 1991: 815–36.
Basu, Susanto. “Procyclical Productivity: Increasing Returns of Cyclical Utilization?Quarterly Journal of Economics 111, no. 3 1996: 719–51.
Basu, Susanto. “Technology and Business Cycles: How Well Do Standard Models Explain the Facts?” In Beyond Shocks: What Causes Business Cycles?, edited by Fuhrer, Jeffrey C. and Schuh, Scott, 207–55. Federal Reserve Bank of Boston Conference Series No. 42, 1998.
Basu, Susanto. “Comment.” In NBER International Seminar on Macroeconomics 2004, edited by Clarida, Richard H., Frankel, Jeffrey A., Giavazzi, Francesco, and West, Kenneth D., 7073. Cambridge: MIT Press, 2006.
Basu, Susanto, and Fernald, John G.. “Returns to Scale in U.S. Production: Estimates and Implications.” Journal of Political Economy 105, no. 2 1997: 249–83.
Basu, Susanto, Fernald, John G., and Kimball, Miles S.. “Are Technology Improvements Contractionary?American Economic Review 96, no. 5 2006: 1418–48.
Basu, Susanto, and Kimball, Miles S.. “Cyclical Productivity with Unobserved Input Variation.” NBER Working Paper No. 5915, Cambridge, MA, 1997.
Bernanke, Ben S. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” American Economic Review 73, no. 3 1983: 257–76.
Bordo, Michael D. “The Classical Gold Standard: Some Lessons for Today.” Federal Reserve Bank of St. Louis Review 63, no. 5 1981: 217.
Bordo, Michael D., Erceg, Christopher J., and Evans, Charles L.. “Money, Sticky Wages, and the Great Depression.” American Economic Review 90, no. 5 2000: 1447–63.
Bordo, Michel D., and Schwartz, Anna J.. “Monetary Policy Regimes and Economic Performance: The Historical Record.” In Handbook of Macroeconomics, Volume I, edited by Taylor, John B. and Woodford, Michael, 149234. Cambridge and North-Holland: Elsevier Science B.V., 1999.
Bresnahan, Timothy, and Raff, Daniel. “Intra-industry Heterogeneity and the Great Depression: The American Motor Vehicles Industry, 1929–1935.” Journal of Economic History 51, no. 2 1991: 317–31.
Cecchetti, Stephen G., and Karras, Georgios. “Sources of Output Fluctuations during the Interwar Period: Further Evidence on the Causes of the Great Depression.” Review of Economics and Statistics 76, no. 1 1994: 80102.
Chari, V.V., Kehoe, Patrick J., and McGrattan, Ellen R.. “Are Structural VARs with Long-run Restrictions Useful in Developing Business Cycle Theory?Journal of Monetary Economics 55, no. 8 2008: 1337–52.
Christiano, Lawrence J., and Fitzgerald, Terry J.. “The Band Pass Filter.” International Economic Review 44, no. 2 2003: 435–65.
Cole, Harold L., and Ohanian, Lee E.. “The Great Depression in the United States from a Neoclassical Perspective.” Federal Reserve Bank of Minneapolis Quarterly Review 23, no. 1 1999: 224.
Council of Economic Advisors. Economic Report of the President, 2010. Washington, D.C., 2010.
Eggertsson, Gauti B. “Great Expectations and the End of the Depression.” American Economic Review 98, no. 4 2008: 1476–516.
Eggertsson, Gauti B. “Was the New Deal Contractionary?American Economic Review 102, no. 1 2012: 524–55.
Eichengreen, Barry, and McLean, Ian W.. “The Supply of Gold under the Pre-1914 Gold Standard.” Economic History Review 47, no. 2 1994: 288309.
Field, Alexander J. “The Most Technologically Progressive Decade of the Century.” American Economic Review 93, no. 4 2003: 1399–413.
Field, Alexander J. “Technological Change and U.S. Productivity Growth in the Interwar Years.” Journal of Economic History 66, no. 1 2006: 203–36.
Field, Alexander J. A Great Leap Forward. New Haven and London: Yale University Press, 2012.
Fisher, Jonas D. M.The Dynamic Effects of Neutral and Investment-Specific Technology Shocks.” Journal of Political Economy 114, no. 3 2006: 413–51.
Francis, Neville, and Ramey, Valerie A.. “Is the Technology-driven Real Business Cycle Hypothesis Dead? Shocks and Aggregate Fluctuations Revisited.” Journal of Monetary Economics 52, no. 8 2005: 1379–99.
Friedman, Milton, and Schwartz, Anna J.. A Monetary History of the United States, 1863–1960. Princeton: Princeton University Press, 1963.
Galí, Jordi. “Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?American Economic Review 89, no. 1 1999: 249–71.
Galí, Jordi, and Rabanal, Pau. “Technology Shocks and Aggregate Fluctuations: How Well Does the Real Business Cycle Model Fit Postwar U.S. Data?” In NBER Macroeconomics Annual 2004, edited by Gertler, Mark and Rogoff, Kenneth, 225308. Cambridge: MIT Press, 2005.
Gavin, William T., Keen, Benjamin D., Richter, Alexander W., et al. “The Zero Lower Bound, the Dual Mandate, and Unconventional Dynamics.” Federal Reserve Bank of St. Louis Working Paper Series 2013–007E, 2014.
Gust, Christopher, Lopez-Salido, David, and Smith, Matthew E.. “The Empirical Implications of the Interest-Rate Lower Bound.” Finance and Economics Discussion Series 2012–83, Board of Governors of the Federal Reserve System, 2012.
Hamilton, James D. “This Is What Happened to the Oil Price-macroeconomy Relationship.” Journal of Monetary Economics 38, no. 2 1996: 215220.
Hayashi, Fumio, and Prescott, Edward C.. “The 1990s in Japan: A Lost Decade.” Review of Economic Dynamics 5, no. 1 2002: 206–35.
Inklaar, Robert, de Jong, Herman, and Gouma, Reitze. “Did Technology Shocks Drive the Great Depression? Explaining Cyclical Productivity Movements in U.S. Manufacturing, 1919–1939.” Journal of Economic History 71, no. 4 2011: 827–58.
Kawamoto, Takuji. “What Do the Purified Solow Residuals Tell Us about Japan's Lost Decade?Monetary and Economic Studies 23, no. 1 2005: 113–48.
Kehoe, Timothy J., and Prescott, Edward C.. “Using the General Equilibrium Growth Model to Study Great Depressions: A Reply to Temin.” Staff Report 418, Federal Reserve Bank of Minneapolis, 2008.
Kendrick, John W. Productivity Trends in the United States. Princeton: Princeton University Press, 1961.
Kendrick, John W. Postwar Productivity Trends in the United States, 1948–1969. New York: Columbia University Press, 1973.
Ohanian, Lee E. “Why Did Productivity Fall So Much during the Great Depression.” American Economic Review 91, no. 2 2001: 3438.
Rhode, Paul W. “Gallman's Annual Output Series for the United States, 1834–1909.” NBER Working Paper Series No. 8860, Cambridge, MA, 2002.
Rockoff, Hugh. “Some Evidence on the Real Price of Gold, Its Costs of Production, and Commodity Prices.” In A Retrospective on the Classical Gold Standard, 1821–1931, edited by Bordo, Michael D. and Schwartz, Anna J., 613–49. Chicago: University of Chicago Press, 1984.
Romer, Christina. “The Great Crash and the Onset of the Great Depression.” Quarterly Journal of Economics 105, no. 3 1990: 597624.
Romer, Christina. “What Ended the Great Depression?Journal of Economic History 52, no. 4 1992: 757–84.
Rotemberg, Julio, and Woodford, Michael. “Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets.” In Frontiers of Business Cycle Research, edited by Cooley, Thomas F., 243–93. Princeton: Princeton University Press, 1995.
Schmitz, Christopher J. World Non-Ferrous Metal Production and Prices, 1700–1976. London: Frank Cass and Company Limited, 1979.
Shea, John. “The Input-Output Approach to Instrument Selection.” Journal of Business & Economic Statistics 11, no. 2 1993: 145–55.
Sims, Eric R. “Taylor Rules and Technology Shocks.” Economics Letters 116, no. 1 2012: 9295.
Solow, Robert M. “Technical Change and the Aggregate Production Function.” Review of Economics and Statistics 39, no. 3 1957: 312–20.
Temin, Peter. “Real Business Cycle Views of the Great Depression and Recent Events: A Review of Timothy J. Kehoe and Edward C. Prescott's Great Depressions of the Twentieth Century.” Journal of Economic Literature 43, no. 3 2008: 669–84.
Temin, Peter. “Using the General Equilibrium Growth Model to Study Great Depressions: A Rejoinder to Kehoe and Prescott.” Working Paper 09–04, Massachusetts Institute of Technology Department of Economics, 2009.
Temin, Peter, and Wigmore, Barrie A.. “The End of One Big Deflation.” Explorations in Economic History 27, no. 4 1990: 483502.
U.S. Census Bureau. Statistical Abstract of the United States: 2011. Washington, D.C., 2010.
U.S. Department of Commerce. U.S. Income and Output, A Supplement to the Survey of Current Business. Washington, D.C., 1958.
U.S. Department of Commerce. Historical Statistics of the United States. Washington, D.C., 1975.
Watanabe, Shingo. “The Role of Technology and Nontechnology Shocks in Business Cycles.” International Economic Review 53, no. 4 2012: 1287–321.
Type Description Title
PDF
Supplementary materials

Watanabe supplementary material
Online Appendix

 PDF (474 KB)
474 KB

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed