Great Depressions of the Twentieth Century

Editors: Timothy J. Kehoe and Edward C. Prescott



“This volume's 16 readings, which examine past economic depressions, all apply variations of dynamic general equilibrium models and growth accounting to separate out the causes of changes in output into three input components — labor, capital, and productivity — and to assess the efficiency with which these factors of production are used. Using these analytical approaches … contributors … attempt to ascertain which factors account for major downturns in economic activity ... For those who think that such economic downturns are limited to decades long past, contributors remind readers that major depressions have occurred more recently in Japan, Mexico, Chile, Argentina, Brazil, New Zealand, Switzerland, and Finland. Not surprisingly, the findings reveal that the relative importance of the three factors varies in different countries and times, and these findings suggest areas for further research.” —E. L. Whalen, Choice

Pete Klenow, Stanford UniversityMacroeconomics strives to explain business cycles and long run economic growth. The major movements in between — including Great Depressions, not just in the 1930s U.S. but in other times and places — deserve just as much attention. Fortunately, this book makes major strides in our understanding of these wrenching episodes using cutting edge dynamic tools.

Robert E. Lucas, Jr., University of ChicagoThe authors in this exciting collection examine depressions — prolonged episodes of below-trend production — in 14 countries, using a common, neoclassical framework. The programs and compatible data sets used in these studies are made available on-line. This book will be the starting point for future investigations of the economic upheavals of the last century.

Thomas J. Sargent, New York University:  Studying this book is an excellent way to learn about how to apply and adapt the optimal growth model to understand the most disturbing of macroeconomic events of the twentieth century, great depressions. The book bristles with intriguing stories, creative ways of expressing them in terms of dynamic equilibrium models, and ambitious attempts to compare them with data.

Nancy L. Stokey, University of ChicagoGreat Depressions — those that occurred in the U.S. and elsewhere in the 1930s and similar episodes in Latin America more recently — are among the most important economic events of the twentieth century. They are also among the least understood. This volume offers a big step forward in our understanding of how such episodes start and of the factors that can turn a potentially short and mild recession into a deep and prolonged depression. Collectively, the papers here bring out both the similarities and differences among these episodes. It is an invaluable resource for macroeconomists from every intellectual school and of every political persuasion.

Michael Woodford, Columbia UniversityThe Great Depression of the 1930s has been a powerful stimulus to the development of macroeconomic theory for more than 70 years. This iconoclastic volume offers yet another view of those dramatic events, showing how neoclassical theory can be applied not only to the Great Depression in the U.S., but to the comparative study of prolonged slumps in economic activity, including the experiences of other countries in the 1930s and more recent case studies from Japan and Latin America. While it is unlikely to provide the last word on any of these complex events, the book is rich with provocative suggestions that will challenge many conventional views. Perhaps as importantly, this book brings neoclassical macro theory to life, showing how it can be used as a framework for interpreting concrete events. It belongs on the bookshelf of every student of macroeconomic theory and of economic policy.

In 2008, Peter Temin wrote a review of the book that appeared in the Journal of Economic Literature. See our response:

Using the General Equilibrium Growth Model to Study Great Depressions: A Reply to Temin, by Timothy J. Kehoe and Edward C. Prescott, Paper [pdf], Data Description [pdf], Data [xls]