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  3. American Economic Review
  4. February 2012
  5. Was the New Deal Contractionary?

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Was the New Deal Contractionary?

  • Gauti B. Eggertsson
American Economic Review
vol. 102, no. 1, February 2012
(pp. 524–55)
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Abstract

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? This paper shows that the answer is yes under certain "emergency" conditions. These emergency conditions—zero interest rates and deflation—were satisfied during the Great Depression in the United States. The New Deal, which facilitated monopolies and union militancy, was therefore expansionary in the model presented. This conclusion is contrary to a large previous literature. The main reason for this divergence is that this paper incorporates rigid prices and the zero bound on the short-term interest rate. (JEL E23, E32, E52, E62, J51, N12, N42)

Citation

Eggertsson, Gauti B. 2012. "Was the New Deal Contractionary?" American Economic Review, 102 (1): 524–55. DOI: 10.1257/aer.102.1.524

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E32 Business Fluctuations; Cycles
  • E52 Monetary Policy
  • E62 Fiscal Policy
  • J51 Trade Unions: Objectives, Structure, and Effects
  • N12 Economic History: Macroeconomics; Growth and Fluctuations: U.S.; Canada: 1913-
  • N42 Economic History: Government, War, Law, International Relations, and Regulation: U.S.; Canada: 1913-