Was Debt Deflation Operative during the Great Depression?

We demonstrate three facts consistent with the debt deflation/credit view explanation of the Great Depression. First, private medium‐ and long‐term nominal debt during the 1920 s exhibited a combination of a high initial value relative to income and a rapid growth rate that is unparalleled in a cons...

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Bibliographic Details
Published in:Economic inquiry 2005-01, Vol.43 (1), p.67-78
Main Authors: Fackler, James S., Parker, Randall E.
Format: Article
Language:English
Subjects:
Analysis
Consumer Price Index
Corporate debt
Debt
Debt service
Deflation
Deflation (Finance)
Deflation theory
Economic history
GNP
Great Depression
Gross National Product
Growth rate
Hypotheses
Insolvency
Long term debt
Monetary economics
Ratios
Studies
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Summary:We demonstrate three facts consistent with the debt deflation/credit view explanation of the Great Depression. First, private medium‐ and long‐term nominal debt during the 1920 s exhibited a combination of a high initial value relative to income and a rapid growth rate that is unparalleled in a consistent data set covering more than half a century. Second, the debt issued during the 1920 s occurred in a stable price regime. Third, near the onset of the Depression, the price process switched to one of deflation. Taken together, the evidence suggests that debt deflation was operative during the Depression.
ISSN:0095-2583
1465-7295
DOI:10.1093/ei/cbi006