This paper reassesses whether the large swings in prices during the 1930's were anticipated. We argue that uncertainty about monetary, fiscal, and exchange rate policies induced systematic differences between the rate of price change expected by economic agents at the time and the time series forecasts of inflation. Our analysis of nominal interest rates and ex post inflation strongly supports this view. In fact. our results suggest that the deflation of the early Depression years and the inflation that followed were both largely unanticipated.
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