Using the General Equilibrium Growth Model to Study Great Depressions: A Rejoinder to Kehoe and Prescott

Abstract

The reply by Kehoe and Prescott restates their position but does not answer the criticism made in my review of their book (Temin 2008). I argued that the general equilibrium model of economic growth to study income fluctuations does not lead to a useful research program; the use of closed-economy models to understand the world problems of the 1930s and the Latin-American problems of the 1980s is not helpful; and the authors using Kehoe and Prescott's recommended approach do not use data with the care standard in other branches of economics. I stand by those criticisms.

Keywords: Depressions, economic fluctuations, general equilibrium models

JEL Classification: E32, N10