Creating Expectations | with Alexander Kriwoluzky, Andrea Papadia, Moritz Schularick 

If the present behavior of forward-looking economic agents is driven by their expectations about the future, can governments influence the economy by creating expectations? More precisely, can governments, by skillfully managing and guiding the public’s perception of present and future policies, boost activity and employment in the present without actually spending much? Do words speaklouder than deeds after all?


We study this question in the context of one of the most consequential macroeconomic success stories of the 20th century that has, to date, defied the explanations advanced within the literature: the recovery of the German economy from the Great Depression under the Nazis from 1933 onwards. Revisiting the causes of the German recovery in the 1930s, our project asks if the role of fiscal policy as a driver of the recovery has to be fundamentally reassessed once the effects of expectation creation are considered. The central hypothesis we explore is that Nazi communication and propaganda efforts created the perception of large present and future fiscal spending and thereby boosted the effectiveness of the fiscal stimulus much beyond its actual size.

May 2020