Christina D. Romer
December 20, 2003
worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest
and most severe depression ever experienced by the industrialized Western world. Although the
Depression originated in the United States, it resulted in drastic declines in output, severe
unemployment, and acute deflation in almost every country of the globe. But its social and
cultural effects were no less staggering, especially in the United States, where the Great
Depression ranks second only to the Civil War as the gravest crisis in American history.
The timing and severity of the Great Depression varied substantially across countries.
The Depression was particularly long and severe in the United States and Europe; it was milder
in Japan and much of Latin America. Perhaps not surprisingly, the worst depression ever
experienced stemmed from a multitude of causes. Declines in consumer demand, financial
panics, and misguided government policies caused economic output to fall in the United States.
The gold standard, which linked nearly all the countries of the world in a network of fixed
currency exchange rates, played a key role in transmitting the American downturn to other
countries. The recovery from the Great Depression was spurred largely by the abandonment of
the gold standard and the ensuing monetary expansion. The Great Depression brought about
fundamental changes in economic institutions, macroeconomic policy, and economic theory.
Timing and severity
In the United States, the Great Depression began in the summer of 1929. The downturn
became markedly worse in late 1929 and continued until early 1933. Real output and prices fell
precipitously. Between the peak and the trough of the downturn, industrial production in the
United States declined 47 percent and real GDP fell 30 percent. The wholesale price index
declined 33... [continues]
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