Friday, March 29, 2019

Coal production 1905-1939 and the Great Depression

I saw this tweet from Beatrice Cherrier that contained an interesting example of NBER data from the 1940s — a time series of coal production in tons:

I noticed that it had the form of a dynamic information equilibrium model:

Whereas the original graph sees 9 business cycles (which corresponds to the NBER recession bands in light orange), the DIEM only sees about 4 (the first one could be two that are unresolved) given the noise in the data. There is the recession associated with WWI (the "post WWI recession" and the depression of 1920) — this is the one that isn't resolved. There's a shock in 1926 which is followed by the shock in 1929 and the Great Depression. Finally, there's the 1937 recession. Often, that last one is blamed on monetary policy or fiscal policy, but the monetary shocks and fiscal shocks both come after this shock to coal production in late 1936/early 1937. The cuts in government spending impact WPA employment in mid-to-late 1937:

The unemployment rate shock is centered in 1938:

The 1937 shock also appears to his several countries (e.g. France), making it unlikely that it was some US-specific policy.

Also as a side note the WPA expansion in 1935 doesn't seem to have a visible impact on the unemployment rate in 1935. Another thing to note is that the market crash in 1929 comes much closer to the middle of the Great Depression shock — coal production was already falling so the market crash can't really be considered a cause. Note also that the unemployment shock comes in 1930 (per the graph above).

Maybe I'll have to do this for the Great Depression!

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