Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi‐Experimental Evidence from a Federal Reserve District Border, 1929–1933

2009 ◽  
Vol 117 (6) ◽  
pp. 1031-1073 ◽  
Author(s):  
Gary Richardson ◽  
William Troost
Keyword(s):  
Experimental Evidence ◽  
Great Depression ◽  
Federal Reserve ◽  
The Great Depression ◽  
Banking Panics ◽  
Quasi Experimental

Shadowy Banks and Financial Contagion during the Great Depression: A Retrospective on Friedman and Schwartz

2013 ◽  
Vol 103 (3) ◽  
pp. 73-78 ◽  
Author(s):  
Kris James Mitchener ◽  
Gary Richardson
Keyword(s):  
New York ◽  
Great Depression ◽  
Federal Reserve ◽  
Banking System ◽  
Financial Contagion ◽  
Bank Failures ◽  
Government Bonds ◽  
Real Effects ◽  
The Great Depression ◽  
Banking Panics

This essay assesses whether network linkages within the banking system amplified the real effects of bank failures during the Great Contraction. In 1929, nearly all interbank deposits held by Federal Reserve member banks belonged to “shadowy” nonmember banks which were outside the regulatory reach of federal regulators. Regional banking panics in the early 1930s drained these interbank deposits from central reserve city banks. Money-center banks in Chicago and New York responded to volatile and declining interbank deposits by changing their asset composition. They reduced their lending to businesses and individuals, and increased their holdings of cash and government bonds.

scholarly journals Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?

2013 ◽  
Vol 27 (4) ◽  
pp. 65-86 ◽  
Author(s):  
Julio J Rotemberg
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Great Depression ◽  
Federal Reserve ◽  
Bank Loans ◽  
The Great Depression

This paper considers some of the large changes in the Federal Reserve's approach to monetary policy. It shows that, in some important cases, critics who were successful in arguing that past Fed approaches were responsible for mistakes that caused harm succeeded in making the Fed averse to these approaches. This can explain why the Fed stopped basing monetary policy on the quality of new bank loans, why it stopped being willing to cause recessions to deal with inflation, and why it was temporarily unwilling to maintain stable interest rates in the period 1979–1982. It can also contribute to explaining why monetary policy was tight during the Great Depression. The paper shows that the evolution of policy was much more gradual and flexible after the Volcker disinflation, when the Fed was not generally deemed to have made an error.

Back to Basics: Reserve Requirements and Money Stock Changes, 1929–1936

2000 ◽  
Vol 44 (1) ◽  
pp. 62-69 ◽  
Author(s):  
Robert F. Stauffer
Keyword(s):  
Monetary Policy ◽  
Great Depression ◽  
Federal Reserve ◽  
Money Stock ◽  
Reserve Requirement ◽  
Reserve Requirements ◽  
Money Multiplier ◽  
The Great Depression

This paper explains how the shift of deposits from nonmember banks and country banks to larger member banks increased the average or “effective” reserve requirement in the 1929–1936 period. The result was an inappropriate tightening of monetary conditions, along with liquidity problems for those banks most susceptible to failure. A basic money multiplier model is developed to help clarify the possible impact of increases in effective reserve requirements. The resulting perspective strengthens the usual charges against the Federal Reserve of monetary policy malfeasance during the Great Depression.

scholarly journals Identifying the Effects of Bank Failures from a Natural Experiment in Mississippi during the Great Depression

2013 ◽  
Vol 5 (1) ◽  
pp. 81-101 ◽  
Author(s):  
Nicolas L Ziebarth
Keyword(s):  
Great Depression ◽  
Causal Effect ◽  
Bank Failures ◽  
Liquidity Provision ◽  
The Great Depression ◽  
Negative Effect ◽  
Quasi Experimental ◽  
Plant Level ◽  
Physical Output ◽  
Large Decline

I examine the causal effect of bank failures during the Great Depression using the quasi-experimental setup of Richardson and Troost (2009). The experiment is based on Mississippi being divided into two Federal Reserve districts, which followed different policies for liquidity provision. This translated into variation in bank failures across the state. Employing a plant-level sample from the Census of Manufactures, I find that banking failures had a negative effect on revenue stemming from a fall in physical output. I find no effect on employment at the plant-level and a large decline at the county-level. (JEL E32, E44, G21, G33, N12, N22, N92)

scholarly journals The Missing Transmission Mechanism in the Monetary Explanation of the Great Depression

2013 ◽  
Vol 103 (3) ◽  
pp. 66-72 ◽  
Author(s):  
Christina D Romer ◽  
David H Romer
Keyword(s):  
Interest Rates ◽  
Detailed Analysis ◽  
Great Depression ◽  
Federal Reserve ◽  
Transmission Mechanism ◽  
Monetary Shocks ◽  
Real Interest Rates ◽  
The Great Depression ◽  
Nominal Interest Rates ◽  
Business Week

This paper examines the missing transmission mechanism in Friedman's and Schwartz's monetary explanation of the Great Depression. We review the challenge provided by the decline in nominal interest rates in the early 1930s, and show that the monetary explanation requires not just that there were expectations of deflation, but that they were caused by monetary contraction. Using a detailed analysis of Business Week magazine, we find evidence that monetary contraction and Federal Reserve policy contributed to expectations of deflation during the downturn. This suggests that monetary shocks may have depressed spending and output in part by raising real interest rates.

The Banking Panics of the Great Depression

1997 ◽  
Vol 63 (4) ◽  
pp. 1121
Author(s):  
James L. Butkiewicz ◽  
Elmus Wicker
Keyword(s):  
Great Depression ◽  
The Great Depression ◽  
Banking Panics
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