Did Harvard barometers allow for the prediction of the 1929 Stock market crash?
Abstract. The Harvard barometers were an attempt to analyse and predict the business cycles, which took place in the 1920s. An initiative from the Harvard Economic Service (HES), it was one of the first and more important instrument used to try to understand the sequence in the economic fluctuations. This paper reconsiders the accepted position about the Harvard barometers, that using them it was impossible to predict the 1929 Depression. I arrive at a different conclusion. Based on the data from the ABC curves in August 1929, and with an available econometric methodology at that time, it would have been possible to forecast the fall in speculation, as defined in the curve A, whereas the fall in business (B), and in monetary and credit conditions (C) were unpredictable. The stock market crash could have been anticipated. The HES stated that curve A precedes B, and then C. This is not detected. This paper makes use of the harmonic analysis by breaking down series in sinusoidal curves. Taking into account this prediction, this work analyses if aggregation was the factor producing the perceived regularities. The conclusion is negative: aggregation did not produce those cycles, they were in the original data.
Keywords. Business cycles, 1929 crash, Forecasting, Periodogram, Economic history.
JEL. B23, C43, E32, N12.
Alcaide, A.I., & Álvarez, V.N. (1992). Econometría. Modelos deterministas y Estocásticos. Teoría, Madrid: Ramón Areces.
Álvarez, V.N. & Vazquez, N.J.. (2002). Metodología Econométrica: Análisis de Indicadores Cíclicos. Madrid: UNED.
Álvarez, V.N., Matilla, G.M., Perez, P.P.A., & Rodriguez, R.J. (2006). Una revisión de los barómetros de Harvard. Rect@, Actas, 14, 1-32.
Beveridge, W. (1922). Wheat prices and rainfall in Western Europe, Journal of the Royal Statistical Society, 85(3), 412-475. doi. 10.2307/2341183
Bullock, C.J., Persons, W.M., & Crum, W.L. (1927). The construction and interpretation of the Harvard index of business conditions, The Review of Economic Statistics and Supplements, 9(2), 74-92. doi. 10.2307/1927977
Burns, E.M. (1929). Statistics and economic forecasting. Journal of the American Statistical Association, 24(166), 152-163.
Crum, W.L. (1922). The determination of secular trend. Journal of the American Statistical Association, 18(138), 210-215.
Crum, W.L. (1923). Cycles of rates on commercial paper. The Review of Economic Statistics and Supplements, 5(1), 17-27.
Crum, W.L. (1924). The Pre War Indexes of General Business tonditions. The Review of Economic Statistics, 6(1), 16-21.
Crum, W.L. (1927). Weekly fluctuations in outside bank debits. The Review of Economics ans Statistics, 9(1), 30-36.
Dominguez, K.M., Fair, R.C., & Shapiro, M.D. (1998). Forecasting the Depression: Harvard versus Yale. The American Economic Review, 78(4), 595-612.
Favero, G. (2007). Weather forecast or rain-dance. On inter-war business barometers?, Department of Economics, Ca’ Foscari University of Venice, Working Paper, No.14/wp/2007.[Retrieved from].
Fisher, R.A. (1929). Tests of Significance in Harmonic Analysis. Proceedings of the Royal Society of London, A(125), 54-59. doi. 10.1098/rspa.1929.0151
Friedman, W.A. (2014). Fortune Tellers. The Story of America's First Economic Forecasters. Princeton: Princeton University Press.
Greenstein, B. (1935). Periodogram analysis with special application to business failures in the United States, 1867-1932, Econometrica, 3(2), 170-198. doi. 0012-9682(193504)3:2<170:PAWSAT>2.0.CO;2-U
Hautcoeur, P.C. (2006). Why and how to measure stock market fluctuations?. The early history of stock market indices, with special reference to the French case. Paris-Jourdan Sciences Economiques, Working Paper, No.2006-10. [Retrieved from].
ILO, (1924). Economic Barometers: Report Submitted to the Economic Committee of the League of Nations.
Jones, J.H. (1928). Business forecasting. Economic Journal, 38(151), 414-425. doi. 10.2307/2224318
Kitchen, J. (1923), Cycles and trends in economic factors. The Review of Economic Statistics, 5(1), 10-16. doi. 10.2307/1927031
Klug, A., Landon-Lane, J., & White, E. (2005). How could everyone have been so wrong?. Forecasting the Great Depression with the railroads. Explorations in Economic History, 42(1), 27-55. doi. 10.1016/j.eeh.2004.06.001
Masset, P. (2008). Analysis of Financial Time-Series using Fourier and Wavelet Methods. University of Fribourg, Department of Finance. [Retrieved from].
Miller, H.E. (1924). Earlier theories of crises and cycles in the United States. The Quarterly Journal Economics, 38(2), 294-329. doi. 10.2307/1884014
Mills, F.C. (1926). An hypothesis concerning the duration of business cycles. Journal of the American Statistical Association, 21(156), 447-453.
Mitchell, W.C. (1910). The Rationality of Economic Activity. Journal of Political Economy, 18(3), 197-216. doi. 10.1086/251677
Mitchell, W.C. (1923). Introduction to business cycles and unemployment. NBER Book, Business Cycles and Unemployment, pp.1-6.
Moore, G. (1969). Forecasting short-term economic change. Journal of the American Statistical Association, 64(325), 1-22.
Moore, H.L. (1914). Economic Cycles: Their Law and Cause. Nueva York: The MacMillan Company.
Moore, H.L. (1921). Generating cycles of products and prices. The Quarterly Journal Economics, 35(2), 215-239. doi. 10.2307/1883887
Persons, W.M. (1916). Construction of a Business Barometer Based upon Annual Data. The American Economic Review, 6(4), 739-769.
Persons, W.M. (1922a). Measuring and Forecasting General Business Conditions, Boston: American Institute of Finance.
Persons, W.M (1922b). The crisis of 1920 in the United States: A quantitative survey. The American Economic Review, 12(1), 5-19.
Persons, W.M. (1922c). An index chart based on prices and money rates. The Review of Economics and Statistics, 4(1), 7-11.
Persons, W.M. (1926). Theories of business fluctuations. Quarterly Journal of Economics, 41(1), 94-128. doi. 10.2307/1885554
Persons, W.M. (1927). An index of general conditions, 1875-1913, The Review of Economic Statistics, 9(1), 20-29.
Persons, W.M. (1930). The Recession of 1929-1930 in the United States. Bulletin de l'Institut International de Statistique, 25(3), 479-489.
Popper, K.R. (1962). Conjectures and Refutations: The Growth of Scientific Knowledge, Basic Books, New York.
Ritschl, A., & Straumann, T. (2009). Business cycles and economic policy, 1914- 1945: A survey. London School of Economics, Economic History Department Working Paper, No.115/09. [Retrieved from].
Romer, C.D. (1988). The Great Crash and the onset of the Great Depression. NBER Working Paper, No.w2639. doi. 10.3386/w2639
Rötheli, T.F. (2006). Business forecasting and the development of business cycle theory. History of Political Economy, 39(3), 481-510. doi. 10.1215/00182702-2007-019
Sambor, N. (2016). Celebrated, Criticized, and Copied Around the World: The Harvard Economic Service and its Place in 20th Century Economic History, Senior Thesis, Department of History, Columbia University.
Schuster, A. (1898). On the investigation of hidden periodicities with application to a supposed 26 day period of meteorological phenomena, Terrestrial Magnetism. 3(1), 13-41.
Schuster, A. (1906). On the Periodicities of Sunspots. Philosophical Transactions of the Royal Society of London, Series A, CCVI.Yule, G.U. (1927). On the method of investigating periodicities in disturbed series, wirt special reference to Wolfer’s sunspot numbers. Philosophical Transactions of the Royal Society, 226, 636-646. doi. 10.1098/rsta.1927.0007
- There are currently no refbacks.
Journal of Economics and Political Economy - J. Econ. Pol. Econ. - JEPE - www.kspjournals.org
Copyright © KSP Library