The Shoe That Didn't Drop: Explaining Banking Stability During the Great Depression

Grossman, Richard S.

doi:10.1017/s0022050700015072

Cited by 148 publications

(103 citation statements)

References 9 publications

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“…Schnabel and Shin (2004) found twin crises in 1763, and della Paolera and Taylor (2001) analyzed the 1890 Baring Crisis in Argentina as a twin crisis, suggesting that the Kaminsky and Reinhart story has simple historical applicability. Grossman (1994), however, found quite a different result in the interwar period. He found that the only predictor of a banking crisis in this period was whether a country was on the gold standard.…”

Section: Crises In Generalmentioning

confidence: 85%

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The German crisis of 1931: evidence and tradition

Temin

2007

Cliometrica

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The German currency was controlled and German banks closed in July 1931. Does it matter whether poor currency management or poor banking practice led to the crisis? This paper argues that it does-because the choice indicates which decisions led to the Great Depression. This issue is so emotional that evidence has been subordinated to tradition in recent academic discussion. Data and economic analysis indicate clearly that the crisis originated in the currency, not the banks. The most useful model for this crisis is Krugman's first generation model of financial crises.

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Section: Crises In Generalmentioning

confidence: 85%

“…This correlation of bank troubles and exchange rate regimes is not affected by the structure of banking in different countries. It was the gold standard, not the structure of banking, that made banks vulnerable in the Great Depression (Grossman 1994).…”

Section: More Recent Analysesmentioning

confidence: 99%

The German crisis of 1931: evidence and tradition

Temin

2007

Cliometrica

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“…As has been widely noted by economic historians, the financial crisis of the 1930s manifested itself as twin crises in many countries (Grossman, 1994;Grossman and Meissner, 2010). With capital controls in place, however, these countries could now conduct monetary policy with the aim of injecting liquidity into banking systems.…”

Section: B Further Evidence On Monetary Policymentioning

confidence: 99%

Capital controls and recovery from the financial crisis of the 1930s

Mitchener

Wandschneider

2015

Journal of International Economics

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We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find evidence that they stemmed gold outflows in the year following their imposition; however, time-shifted, difference-indifferences (DD) estimates of industrial production, prices, and exports suggest that exchange controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated. Countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold. Time series regressions further demonstrate that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy. Even so, capital controls remained in place as instruments for manipulating trade flows and for preserving foreign exchange for the repayment of external debt.* We thank conference and seminar participants at Oxford University, UC Davis, and the Bank of Norway-Graduate Institute of International Studies Conference for useful suggestions. Melissa Daniel and Rose York provided invaluable research assistance.

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“…See Grossman (1993) for a more detailed and generally complementary analysis of the causes of interwar banking panics.…”

Section: Deflation and The Financial Systemmentioning

confidence: 99%

The Macroeconomics of the Great Depression: A Comparative Approach

Bernanke¹

1994

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Recently, research on the causes of the Great Depression has shifted from a heavy emphasis on events in the United States to a broader, more comparative approach that examines the interwar experiences of many countries simultaneously. In this lecture I survey the current state of our knowledge about the Depression from a comparative perspective. On the aggregate demand side of the economy, comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the Depression; an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one Nash equilibrium to another. On the aggregate supply side, comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects. Still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment.

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The Shoe That Didn't Drop: Explaining Banking Stability During the Great Depression

Cited by 148 publications

References 9 publications

The German crisis of 1931: evidence and tradition

The German crisis of 1931: evidence and tradition

Capital controls and recovery from the financial crisis of the 1930s

The Macroeconomics of the Great Depression: A Comparative Approach

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