Economic Fluctuations and Growth.

• Position: Program and Working Group Meetings

The NBER's Program on Economic Fluctuations and Growth held a research meeting at the Federal Reserve Bank of New York on February 8. Organizers Per Krusell, NBER and Uppsala University, and Monika Piazzesi, NBER and Federal Reserve Bank of Minneapolis, chose these papers for discussion:

Gauti B. Eggertsson, Federal Reserve Bank of New York, "Was the New Deal Contractionary?"

Critic: Marvin Goodfriend, Carnegie Mellon University and NBER

Alejandro Justiniano, Federal Reserve Board; Giorgio E. Primiceri, Northwestern University and NBER; and Andrea Tambalotti, Federal Reserve Bank of New York, "Investment Shocks and Business Cycles"

Critic: Frank Schorfheide, University of Pennsylvania and NBER

Marco Battaglini, Princeton University, and Stephen Coate, Cornell University and NBER, "Fiscal Policy over the Real Business Cycle:A Positive Theory"

Critic: Marco Bassetto, Federal Reserve Bank of Chicago and NBER

Matthew Chambers, Towson University; Carlos Garriga, Federal Reserve Bank of Sc Louis; and Donald E. Schlagenhauf, Florida State University, "Accounting for Changes in the Homeownership Rate"

Critic: Dirk Krueger, University of Pennsylvania and NBER

Mark Huggett, Georgetown University; Gustavo Ventura, University of Iowa; and Amir Yaron, University of Pennsylvania and NBER, "Sources of Lifetime Inequality"(NBER Working Paper No. 13224)

Critic: Luigi Pistaferri, Stanford University

Chang-Tai Hsieh, University of California, Berkeley and NBER, and Peter J. Klenow, Stanford University and NBER, "Misallocation and Manufacturing TFP in China and India"

Critic: Samuel Kortum, University of Minnesota and NBER

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? Eggertsson studies this question in a dynamic general equilibrium model with nominal frictions and shows that these policies are expansionary when certain "emergency" conditions apply. He argues that these emergency conditions--zero interest rates and deflation--were satisfied during the Great Depression in the United States. Therefore, the New Deal, which facilitated monopolies and union militancy, was expansionary, according to the model. This conclusion is contrary to the one reached by Cole and Ohanian (2004), who argue that the New Deal was contractionary. The main reason for this divergence is that the current model incorporates nominal frictions so that inflation expectations play a central role in the analysis. The New Deal...