Hostname: page-component-586b7cd67f-vdxz6 Total loading time: 0 Render date: 2024-11-29T07:06:13.009Z Has data issue: false hasContentIssue false
  • English
  • Français

Technology Shocks and the Great Depression

Published online by Cambridge University Press:  30 August 2016

Shingo Watanabe
Shingo Watanabe*
Affiliation:
Shingo Watanabe is Director, Bank of Japan (Osaka Branch), 2-1-45 Nakanoshima, Kita-ku, Osaka 530-8660, Japan. E-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

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.

Type
Articles
Information
The Journal of Economic History , Volume 76 , Issue 3 , September 2016 , pp. 909 - 933
Copyright
Copyright © The Economic History Association 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

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.

References

REFERENCES

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.CrossRefGoogle Scholar
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: 39–92.CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
Basu, Susanto. “Procyclical Productivity: Increasing Returns of Cyclical Utilization?” Quarterly Journal of Economics 111, no. 3 1996: 719–51.CrossRefGoogle Scholar
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.Google Scholar
Basu, Susanto. “Comment.” In NBER International Seminar on Macroeconomics 2004, edited by Clarida, Richard H., Frankel, Jeffrey A., Giavazzi, Francesco, and West, Kenneth D., 70–73. Cambridge: MIT Press, 2006.Google Scholar
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.CrossRefGoogle Scholar
Basu, Susanto, Fernald, John G., and Kimball, Miles S.. “Are Technology Improvements Contractionary?” American Economic Review 96, no. 5 2006: 1418–48.CrossRefGoogle Scholar
Basu, Susanto, and Kimball, Miles S.. “Cyclical Productivity with Unobserved Input Variation.” NBER Working Paper No. 5915, Cambridge, MA, 1997.Google Scholar
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.Google Scholar
Bordo, Michael D. “The Classical Gold Standard: Some Lessons for Today.” Federal Reserve Bank of St. Louis Review 63, no. 5 1981: 2–17.Google Scholar
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.CrossRefGoogle Scholar
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, 149–234. Cambridge and North-Holland: Elsevier Science B.V., 1999.CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
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: 80–102.CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
Christiano, Lawrence J., and Fitzgerald, Terry J.. “The Band Pass Filter.” International Economic Review 44, no. 2 2003: 435–65.CrossRefGoogle Scholar
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: 2–24.Google Scholar
Council of Economic Advisors. Economic Report of the President, 2010. Washington, D.C., 2010.Google Scholar
Eggertsson, Gauti B. “Great Expectations and the End of the Depression.” American Economic Review 98, no. 4 2008: 1476–516.CrossRefGoogle Scholar
Eggertsson, Gauti B. “Was the New Deal Contractionary?” American Economic Review 102, no. 1 2012: 524–55.CrossRefGoogle Scholar
Eichengreen, Barry, and McLean, Ian W.. “The Supply of Gold under the Pre-1914 Gold Standard.” Economic History Review 47, no. 2 1994: 288–309.CrossRefGoogle Scholar
Field, Alexander J. “The Most Technologically Progressive Decade of the Century.” American Economic Review 93, no. 4 2003: 1399–413.CrossRefGoogle Scholar
Field, Alexander J. “Technological Change and U.S. Productivity Growth in the Interwar Years.” Journal of Economic History 66, no. 1 2006: 203–36.CrossRefGoogle Scholar
Field, Alexander J. A Great Leap Forward. New Haven and London: Yale University Press, 2012.Google Scholar
Fisher, Jonas D. M. “The Dynamic Effects of Neutral and Investment-Specific Technology Shocks.” Journal of Political Economy 114, no. 3 2006: 413–51.CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
Friedman, Milton, and Schwartz, Anna J.. A Monetary History of the United States, 1863–1960. Princeton: Princeton University Press, 1963.Google Scholar
Galí, Jordi. “Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?” American Economic Review 89, no. 1 1999: 249–71.CrossRefGoogle Scholar
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, 225–308. Cambridge: MIT Press, 2005.Google Scholar
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.CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
Hamilton, James D. “This Is What Happened to the Oil Price-macroeconomy Relationship.” Journal of Monetary Economics 38, no. 2 1996: 215–220.CrossRefGoogle Scholar
Hayashi, Fumio, and Prescott, Edward C.. “The 1990s in Japan: A Lost Decade.” Review of Economic Dynamics 5, no. 1 2002: 206–35.CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
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.Google Scholar
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.CrossRefGoogle Scholar
Kendrick, John W. Productivity Trends in the United States. Princeton: Princeton University Press, 1961.Google Scholar
Kendrick, John W. Postwar Productivity Trends in the United States, 1948–1969. New York: Columbia University Press, 1973.Google Scholar
Ohanian, Lee E. “Why Did Productivity Fall So Much during the Great Depression.” American Economic Review 91, no. 2 2001: 34–38.CrossRefGoogle Scholar
Rhode, Paul W. “Gallman's Annual Output Series for the United States, 1834–1909.” NBER Working Paper Series No. 8860, Cambridge, MA, 2002.Google Scholar
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.Google Scholar
Romer, Christina. “The Great Crash and the Onset of the Great Depression.” Quarterly Journal of Economics 105, no. 3 1990: 597–624.CrossRefGoogle Scholar
Romer, Christina. “What Ended the Great Depression?” Journal of Economic History 52, no. 4 1992: 757–84.CrossRefGoogle Scholar
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.Google Scholar
Schmitz, Christopher J. World Non-Ferrous Metal Production and Prices, 1700–1976. London: Frank Cass and Company Limited, 1979.Google Scholar
Shea, John. “The Input-Output Approach to Instrument Selection.” Journal of Business & Economic Statistics 11, no. 2 1993: 145–55.Google Scholar
Sims, Eric R. “Taylor Rules and Technology Shocks.” Economics Letters 116, no. 1 2012: 92–95.CrossRefGoogle Scholar
Solow, Robert M. “Technical Change and the Aggregate Production Function.” Review of Economics and Statistics 39, no. 3 1957: 312–20.CrossRefGoogle Scholar
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.Google Scholar
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.CrossRefGoogle Scholar
Temin, Peter, and Wigmore, Barrie A.. “The End of One Big Deflation.” Explorations in Economic History 27, no. 4 1990: 483–502.CrossRefGoogle Scholar
U.S. Census Bureau. Statistical Abstract of the United States: 2011. Washington, D.C., 2010.Google Scholar
U.S. Department of Commerce. U.S. Income and Output, A Supplement to the Survey of Current Business. Washington, D.C., 1958.Google Scholar
U.S. Department of Commerce. Historical Statistics of the United States. Washington, D.C., 1975.Google Scholar
Watanabe, Shingo. “The Role of Technology and Nontechnology Shocks in Business Cycles.” International Economic Review 53, no. 4 2012: 1287–321.CrossRefGoogle Scholar
Supplementary material: PDF

Watanabe supplementary material

Online Appendix

Download Watanabe supplementary material(PDF)
PDF 474.3 KB