1. Romer “The Great Crash and the Onset of the Great Depression” Vaughan / Economics 639 1

2. Key Points 1929 stock market crash and continued stock-price gyrations in 1930 made people nervous about future of economy. Put another way, extreme stock price variability made people temporarily uncertain about future income. This uncertainty caused consumers to postpone purchases of irreversible durable goods. – That Great Crash generated uncertainty is evidenced by decline in surety expressed by contemporary forecasters. – That this uncertainty affected consumer behavior is shown by drastic decline in spending on consumer durables in late 1929, while spending on perishable goods rose slightly. – Effect is confirmed by significant negative relationship between stock- market variability and consumer durable production in pre-WWI era. 2

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6. Other Evidence Forecaster uncertainty spiked in 1930, relative to the 1920s Equation estimates for 1987 stock market crash show similar effects (i.e., uncertainty lowered spending on consumer durables), but the effect was shorter lived. 6