The Term Structure of Interest Rates and the Demand for Money during the Great Depression

1989 ◽  
Vol 56 (2) ◽  
pp. 490 ◽  
Author(s):  
Christopher F. Baum ◽  
Clifford F. Thies
Keyword(s):  
Interest Rates ◽  
Great Depression ◽  
Term Structure ◽  
Demand For Money ◽  
The Great Depression

Uncertainty as a Propagating Force in The Great Depression

1994 ◽  
Vol 54 (4) ◽  
pp. 825-849 ◽  
Author(s):  
J. Peter Ferderer ◽  
David A. Zalewski
Keyword(s):  
Interest Rates ◽  
Great Depression ◽  
Term Structure ◽  
Risk Premium ◽  
Gold Standard ◽  
Significant Proportion ◽  
Banking Crises ◽  
The Great Depression ◽  
Aggregate Investment ◽  
Investment Spending

This article argues that the banking crises and collapse of the international gold standard in the early 1930s contributed to the severity of the Great Depression by increasing interest-rate uncertainty. Two pieces of evidence support this conclusion. First, uncertainty (as measured by the risk premium embedded in the term structure of interest rates) rises during the banking crises and is positively linked to financial-market volatility associated with the breakdown in the gold standard. Second, the risk premium explains a significant proportion of the variation in aggregate investment spending during the Great Depression.

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.

scholarly journals The Demand for Money and the Term Structure of Interest Rates

1979 ◽  
Vol 87 (1) ◽  
pp. 109-129 ◽  
Author(s):  
H. Robert Heller ◽  
Mohsin S. Khan
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Demand For Money

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.

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