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The Household Balance Sheet and the Great Depression


This paper focuses on changes in household balance sheets during the Great Depression as transmission mechanisms which were important in the decline of aggregate demand. Theories of consumer expenditure postulate a link between balance-sheet movements and aggregate demand, and applications of these theories indicate that balance-sheet effects can help explain the severity of this economic contraction. In analyzing the business cycle movements of this period, this paper's approach is Keynesian in character in that it emphasizes demand shifts in particular sectors of the economy; yet it has much in common with the monetarist approach in that it views events in financial markets as critical to our understanding of the Great Depression.

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Ben Bolch and John Pilgrim , “A Reappraisal of Some Factors Associated with Fluctuations in the United States in the Interwar Period,” Southern Economic Journal, 39 (Jan. 1973), 327–44

John B. Kirkwood , “The Great Depression: A Structural Analysis,” Journal of Money, Credit and Banking, 4 (Nov. 1972), 811–37

Both Irving Fisher , “The Debt-Deflation Theory of Great Depressions,” Econometrica, 1 (Oct. 1933), 337–57

[Frederic S. Mishkin , “Household Liabilities and the Generalized Stock-Adjustment Model,” Review of Economics and Statistics, 58 (Nov. 1976), 481–85

Brian Motley , “Household Demand for Assets: A Model of Short-Run Adjustments,” Review of Economics and Statistics, 52, (Aug. 1970), 236–41]

J. R. Kearl and Frederic S. Mishkin , “Illiquidity, the Demand for Residential Housing, and Monetary Policy,” Journal of Finance, 32 (Dec. 1977), 1571–86

Ben Bolch , Rendigs Fels and Marshall McMahon , “Housing Surplus in the 1920's?Explorations in Economic History, 8 (Spring 1971), 259–83

Lloyd J. Mercer and W. Douglas Morgan , “Alternative Interpretations of Market Saturation: Evaluation for the Automobile Market in the Late Twenties,” Explorations in Economic History, 9 (Spring 1972), 269–90

James Tobin , “A General Equilibrium Approach to Monetary Theory,” Journal of Money, Credit and Banking, 1 (Feb. 1969), 1529

Richard V. L. Cooper , “Efficient Capital Markets and the Quantity Theory of Money,” Journal of Finance, 29 June 1974), 887908

Raymond W. Goldsmith , R. E. Lipsey and M. Mendelson , Studies in the National Balance Sheet of the United States (Princeton, 1963)

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