An historical decomposition of the great depression to determine the role of money

The innovation-accounting technique of historical decomposition seems ideally suited as a vehicle for a re-examination of money's role during the Depression. Its application, using U.S. monthly data for 1919 to 1941, reveals that innovations in money exerted a considerable influence on prices and output after October 1929, although the depth of the Depression and the extent of the subsequent recovery cannot be attributed solely to monetary factors. An important, albeit occasionally diminished, monetary effect is also identified even when a passive, contemporaneous response by money to price and output fluctuations is assumed not to contribute to the effect.