INCOME UNCERTAINTY and THE ONSET OF THE GREAT DEPRESSION

Abstract

Income uncertainty contributes substantially to explaining the fall in consumption that marks the onset of the Great Depression. Consistent estimates of the variance of income measure income uncertainty from 1921‐30 and are produced using a linear moment model. This series provides a statistical link between the large erratic swings in income uncertainty after September 1929 and the Great Crash in the stock market. Comparison of the behavior of income uncertainty in the 1920s to the pre‐World War I and post‐World War II eras suggests that the experience after the Great Crash was historically unique.