pp 1–41 | Cite as

How much did uncertainty shocks matter in the Great Depression?

  • Gabriel P. MathyEmail author
Original Paper


The USA in the 1930s experienced unprecedented uncertainty. Uncertainty shocks buffeted the economy during recessionary periods, but these shocks receded during the recovery periods of the Great Depression. Using vector autoregressions on monthly data for 1919–1941, I show that a one standard deviation increase in uncertainty decreased investment, GDP, industrial output, employment, hours worked, wages, and the price level. I perform a historical decomposition simulation to see how much uncertainty shocks mattered for explaining movements in major variables during the Depression. Roughly 40–70% of the simulated decline in output can be explained by uncertainty shocks in the Great Depression.


Uncertainty shocks Great Depression Historical decomposition 

JEL Classification

D80 E32 N12 



I have benefited from fruitful conversations with Gustavo Cortes, Chris Meissner, Ellis Tallman, Nicholas Bloom, and many others, and have had many useful discussions at seminars and conferences. All errors remain my own.

Supplementary material

11698_2019_190_MOESM1_ESM.pdf (47 kb)
Supplementary material 1 (pdf 48 KB)


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© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.American UniversityWashingtonUSA

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