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Course outline
Week 2-1: IntroductionWeeks 2-2 through 6: The U.S.
DepressionWeeks 7-8: Europe and the
Great DepressionWeeks 9-10: Project
presentations
Summer Term: Exam
Course Outline (cont’d)Week 2-2 Hayek v Friedman: Was Money Too Tight Or Too Strict?
Week 3-1 Revisiting the Monetary Hypothesis
Week 3-2 A Housing Bubble? Keynesianism v Fisher
Week 4-1 A Bubble in the 1929 Stock Market?
Week 4-2 It’s Crunch Time, Ben: The Financial Accelerator
Week 5-1 Revisiting the Financial Accelerator Hypothesis
Week 5-2 Animal Spirits? The Keynesian Hypothesis Revisited
Week 6-1 Labour Markets and the Great Depression: the Minnesota View
Week 6-2 Monopoly Power and Trade Unionism: A Modified Supply Side View
Course Outline (Cont’d)
Weeks 7-8: Europe and the Great Depression
Week 7-1 Europe and the Great Depression
Week 7-2 A Tale of Two Recoveries: the U.S. and Germany, 1933-1937
Week 8-1 Europe’s Great Depression, 1920-1960; A Long Term View
Week 8-2 The Macroeconomic Effects of the two World Wars
Weeks 9-10: Project Presentations by Students
Figure 1: WE GDP Per Capita 1901-73
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1901
1905
1909
1913
1917
1921
1925
1929
1933
1937
1941
1945
1949
1953
1957
1961
1965
1969
1973
1990
Gh
eary
Kh
amis
$ (
Mad
dis
on
)
Total 12 Western Europe
1.95 % Trend
Observations
The trend line is “counterfactual”, derived from theory
Neoclassical Growth Theory: steady state growth of output per capita is around 2 % per year
In a linear chart, this yields an exponential function with ever-increasing slope
Figure 1: WE GDP Per Capita 1901-73
1,000
100,000
1901
1905
1909
1913
1917
1921
1925
1929
1933
1937
1941
1945
1949
1953
1957
1961
1965
1969
1973
1990
Gh
eary
Kh
amis
$ (
Mad
dis
on
)
Total 12 Western Europe
1.95 % Trend
Observations Logarithmic y scale: constant percentage
growth is translated into constant slope Exponential functions now become straight
lines The 2% trend is thus now a straight upward
sloping line Neoclassical Growth Theory: slope of this line
is around 2 % per year (here a bit smaller) Depressions and upswings look a bit
compressed
Figure 2: Europe's Great Depression and Recovery, 1913-1973:
WE GDP per Capita Relative to 1.95 % Trend
0
20
40
60
80
100
120
1901
1905
1909
1913
1917
1921
1925
1929
1933
1937
1941
1945
1949
1953
1957
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
1913
=10
0
1921 1932 1945/6
Deviations from Trend
Now have trend as horizontal line Look at cycles as deviation from
trend
Surprising result: find Europe in recession from 1920 to1945
Other important trends First (logarithmic) differences Hodrick/Prescott filter Bandpass filters
In all cases, define cycles as deviations from trend (we will see this in more detail)
Vs. NBER definition: recession if negative rates of change in two subsequent quarters
The special case of Britain
Britain the first industrializer Growth and productivity slowdown in
late 19th century, subsequent acceleration
Low British trend growth 1920-80 drags down European average
Reversed if allow for structural breaks, but highly doubtful concept
Figure 3: Jeremy Clarkson's Nightmare- WE GDP Per Capita Relative to the UK -
0
20
40
60
80
100
120
18
70
18
76
18
82
18
88
18
94
19
00
19
06
19
12
19
18
19
24
19
30
19
36
19
42
19
48
19
54
19
60
19
66
19
72
19
78
19
84
19
90
19
96
20
02
UK
= 1
00
1918 1934 1946
Extrapolated Trend?
Chronic Depression: British Per Capita GNP and Trend, 1919-2004
0
5,000
10,000
15,000
20,000
25,000
19
19
19
24
19
29
19
34
19
39
19
44
19
49
19
54
19
59
19
64
19
69
19
74
19
79
19
84
19
89
19
94
19
99
20
04
Y / N
1.6 % Trend 1918
2.0 % Trend 1947
Chronic Depression: British Per Capita GNP and Trend, 1919-2004
1,000
19
19
19
24
19
29
19
34
19
39
19
44
19
49
19
54
19
59
19
64
19
69
19
74
19
79
19
84
19
89
19
94
19
99
20
04
Y / N
1.6 % Trend 1918
2.0 % Trend 1947