Was the New Deal Contractionary? - FEDERAL RESERVE BANK of NEW YORK

Museum & Gold Tour Regional Economy Data & Statistics Careers Blog Press Center

About the New York Fed
- About the New York Fed
- What We Do
- Governance
- Diversity and Inclusion
- Advisory Groups
- Events
- Vendor Information
- Working within the Federal Reserve System, the New York Fed implements monetary policy, supervises and regulates financial institutions and helps maintain the nation's payment systems.
  
  Do you have a Freedom of Information request? Learn how to submit it.
  
  See the world's largest accumulation of gold as you learn about the New York Fed and Federal Reserve System on a free tour.
  
  The latest Annual Report chronicles the impact of Federal Reserve policies and includes data on the New York Fed's operations.
Markets & Policy Implementation

Economic Research
- Economic Research
- Data & Indicators
- Publications
- PEOPLE
- Liberty Street Economics Blog
- Our economists engage in scholarly research and policy-oriented analysis on a wide range of important issues.
  
  The Center for Microeconomic Data offers analysis and data exploring individual-level financial and nonfinancial economic conditions, expectations, and behavior in the United States.
  
  Our model produces a "nowcast" of GDP growth, incorporating a wide range of macroeconomic data as it becomes available.
  
  U.S. Economy in a Snapshot is a monthly presentation designed to give you a quick and accessible look at developments in the economy.
Financial Institution Supervision
- Financial Institution Supervision
- Supervision & Regulation
  - Circulars
  - Regulations
- Reporting Forms & Instructions
  - Reporting Forms
  - Correspondence
- Bank Applications
- Consumer Protection
  - Community Reinvestment Act Exams
  - Frauds and Scams
- As part of our core mission, we supervise and regulate financial institutions in the Second District. Our primary objective is to maintain a safe and competitive U.S. and global banking system.
  
  The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
  
  Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
  
  The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
Financial Services & Infrastructure
- Financial Services & Infrastructure
- Financial Services & Operations
- Financial Market Infrastructure & Reform
- The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
  
  The New York Fed provides a wide range of payment services for financial institutions and the U.S. government.
  
  The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
  
  The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.
Outreach & Education
- Outreach & Education
- Community Development
- School & University Programs
  - High School
  - College and Graduate
- Museum & Learning Center
- Events
  - Upcoming Events
  - Past Events
- The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
  
  The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
  
  The College Fed Challenge is a team competition for undergraduates inspired by the working of the Federal Open Market Committee.
  
  The Community Credit interactive highlights credit conditions, including measures of credit inclusion and stress, at the national, state and county levels.

Staff Reports

Was the New Deal Contractionary?

October 2006 Number 264

JEL classification: E52, E62, E65, N12

Author: Gauti B. Eggertsson

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? This paper studies this question in a dynamic general equilibrium model with nominal frictions and shows that these policies are expansionary when certain "emergency" conditions apply. I argue that these emergency conditions—zero interest rates and deflation—were satisfied during the Great Depression in the United States. Therefore, the New Deal, which facilitated monopolies and union militancy, was expansionary, according to the model. This conclusion is contrary to the one reached by Cole and Ohanian, who argue that the New Deal was contractionary. The main reason for this divergence is that the current model incorporates nominal frictions so that inflation expectations play a central role in the analysis. The New Deal has a strong effect on inflation expectations in the model, changing excessive deflation to modest inflation, thereby lowering real interest rates and stimulating spending.

Available only in PDF PDF

40 pages / 458 kb

tools