Contagion of fear: Panics, money, and the Great Depression

Contagion of fear: Panics, money, and the Great Depression

Despite its centrality in debates about the causes and consequences of the Great Depression, banking panics’ impact on the money supply during this period remains a subject of ongoing debate. Before 1936, the Fed's decentralized structure meant that panics impacted money creation regionally whi...

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Bibliographic Details
Published in:Explorations in economic history Vol. 93; p. 101589
Main Authors: Marodin, Fabrizio Almeida, Mitchener, Kris James, Richardson, Gary
Format: Journal Article
Language:English
Published: Elsevier Inc 01-07-2024
Subjects:
Banking panics
Contagion
Great depression
Monetary deflation
Contagion
E44
Banking panics
G21
Monetary deflation
G01
Great depression
N22
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Summary:Despite its centrality in debates about the causes and consequences of the Great Depression, banking panics’ impact on the money supply during this period remains a subject of ongoing debate. Before 1936, the Fed's decentralized structure meant that panics impacted money creation regionally while monetary impulses impacted bank stability nationally. We use this structure and newly digitized data to construct monetary aggregates at the Federal Reserve district level and apply a novel identification strategy that allows us to isolate the panics’ impact on monetary aggregates. We find that panics reduced the money supply by 27%, or in other words, that panics caused most of the decline in the money supply from June 1929 to December 1932.
ISSN:0014-4983
1090-2457
DOI:10.1016/j.eeh.2024.101589