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Eggertsson Commodity Prices and the Mistake of 1937

Eggertsson Commodity Prices and the Mistake of 1937. Vaughan / Economics 639 / Fall 2012. Mistake of 1937 . Decision by Fed to double reserve requirements in three stages from August 1936 to May 1937. Rationale:

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Eggertsson Commodity Prices and the Mistake of 1937

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  1. EggertssonCommodity Prices and the Mistake of 1937 Vaughan / Economics 639 / Fall 2012

  2. Mistake of 1937 • Decision by Fed to double reserve requirements in three stages from August 1936 to May 1937. • Rationale: • Excess reserves could lead to lending explosion and(i) inflation and (ii) another asset bubble. • Result: Serious recession (May 1937 to June 1938) • Industrial production fell 31.8% • Unemployment rose to 19%

  3. Commodity Prices MisleadingIncreases Driven by Supply Factors, Not Inflation

  4. Inflation not a Problem

  5. Fallout from “Mistake of 1937”

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