Labor Market Policies in a Deep Recession: Lessons from Hoover's Policies during the U.S. Great Depression

What are the effects of labor market policies when the economy is sliding into a deep recession? We show that public announcements asking firms not to cut wages under H. Hoover during 1929–33 postponed entering the zero lower bound episode and reduced its duration. We develop and estimate a medium s...

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Published inJournal of money, credit and banking Vol. 54; no. 1; pp. 247 - 283
Main Authors ROULLEAU‐PASDELOUP, JORDAN, ZHUTOVA, ANASTASIA
Format Journal Article
LanguageEnglish
Published Columbus Ohio State University Press 01.02.2022
Subjects
Deflation
Great Depression
Hoover, Herbert Clark Sr (1874-1964)
Keynesian theory
Labor market
Recessions
Zero lower bound
United States > US
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Summary:What are the effects of labor market policies when the economy is sliding into a deep recession? We show that public announcements asking firms not to cut wages under H. Hoover during 1929–33 postponed entering the zero lower bound episode and reduced its duration. We develop and estimate a medium scale New Keynesian model to measure the effect of Hoover policies during the Great Depression and we find evidence that without such polices the U.S. economy would have ended up in a liquidity trap 3 years before it actually did, suffering an even deeper recession with a larger deflation.
Bibliography:We thank Yvan Becard, Kenza Benhima, Fabrizio Coricelli, Gauti Eggertsson, Céline Poilly, Alejandro Justiniano, Etienne Lehmann, Antoine Lepetit, Jean‐Baptiste Michau, Lee E. Ohanian, Stephanie Schmitt‐Grohé, Martin Uribe, and several seminar participants for interesting comments. We are especially grateful to Jean‐Olivier Hairault and Florin O. Bilbiie for their extensive comments. Part of the work on this paper by Jordan Roulleau‐Pasdeloup has been done at the Centre de Recherche en Économie et Statistique (CREST) during his Ph.D. and he would like to thank them for their kind hospitality and support. The views expressed herein are those of the authors and should not be interpreted as reflecting those of the Banque de France.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12798