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Great Expectations? Germany's Recovery from the Great Depression, 1932-1936

Completed Project



Project Management

Prof. Dr. Philip Jung, Prof. Dr. Alexander Kriwoluzky, Prof. Dr. Moritz Schularick

Project Period

January 1, 2016 - January 31, 2019

Commissioned by

German Research Foundation (DFG), Priority Programme 1859

In Cooperation With

TU Dortmund University, University of Bonn

The overarching objective of the project is to describe and analyse the evolution of expectations about key macroeconomic variables in Germany between 1932 and 1934 and use these insights to evaluate their significance for the German recovery from the Great Depression in a structural macroeconomic model. We aim to assemble qualitative and quantitative evidence about the evolution of expectations at this critical juncture of German history and relate them to the cyclical profile of the recovery. Combining micro and macro evidence, the project necessitates extensive archival work that will be carried out by doctoral researchers working at the intersection of economic history and macroeconomics. Each part of the project requires some specialized skills provided by one of the collaborators. However, it is the interaction between the three parts of the project that will yield compelling bridges between economic history, macro-econometrics and macroeconomic theory.

The overall project consists of three parts. The objective of the first part is to provide a detailed descriptive analysis of the German economy from 1925 to 1935 on a monthly frequency. For this purpose, we will digitize and analyse detailed sector-level data on output, wages, and prices from the Konjunkturstatistisches Handbuch of 1936. The statistical analysis will be based on novel time-series techniques to handle big data. The key output will be a much more granular understanding of the cyclical profile of the German recovery process.

The second part of the project focuses on the expectation formation of economic agents in Germany in the years 1932-34. Our aim is to extract detailed expectations on the micro-level from individual company archives as well as macro-level expectations from the financial press, financial markets and forecasts from research institutes and business associations. This part forms the historical core of the research project. It will enable us to compare the results of the statistical analysis in the first part with qualitative and quantitative information about expectation formation of the historical economic agents. In the third part of the project, we will use the evidence from the first two parts to evaluate what role changing expectations played for the German recovery in the 1930’s. We will develop a structural dynamic macroeconomic model that integrates various explanations for the German recovery. We calibrate the model to the data and quantify the relative importance of different factors in accounting for the German recovery from 1932-1934.

DIW Team

Topics: Business cycles