Inflation Expectations and Recovery from the Depression in 1933: Evidence from the Narrative Record

This paper uses the historical narrative record to determine whether inflation expectations shifted during the second quarter of 1933, precisely as the recovery from the Great Depression took hold. First, by examining the historical news record and the forecasts of contemporary business analysts, we show that inflation expectations increased dramatically. Second, using an event-studies approach, we identify the impact on financial markets of the key events that shifted inflation expectations. Third, we gather new evidence--both quantitative and narrative--that indicates that the shift in inflation expectations played a causal role in stimulating the recovery.