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Abstract

This paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period. Our approach is complementary to that of Friedman and Schwartz, who emphasized the monetary impact of the bank failures; we focus on non-monetary (primarily credit-related) aspects of the financial sector--output link and consider the problems of debtors as well as those of the banking system. We argue that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand. Evidence suggests that effects of this type can help explain the unusual length and depth of the Great Depression.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 73 (1983)
Issue (Month): 3 (June)
Pages: 257-76

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Handle: RePEc:aea:aecrev:v:73:y:1983:i:3:p:257-76

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1. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-80, August.
   
   • Barro, Robert J., 1978. "Unanticipated Money, Output, and the Price Level in the United States," Scholarly Articles 3450988, Harvard University Department of Economics.
2. O'Hara, Maureen & Easley, David, 1979. "The Postal Savings System in the Depression," The Journal of Economic History, Cambridge University Press, vol. 39(03), pages 741-753, September.
3. Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 207-37, April.
4. Bernanke, Ben S, 1981. "Bankruptcy, Liquidity, and Recession," American Economic Review, American Economic Association, vol. 71(2), pages 155-59, May.
5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
6. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 38(04), pages 918-937, December.
7. Robert P. Flood & Peter M. Garber, 1981. "A Systematic Banking Collapse in a Perfect Foresight World," NBER Working Papers 0691, National Bureau of Economic Research, Inc.
8. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
   
   • Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
9. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
10. Abel, Andrew B. & Mishkin, Frederic S., 1983. "An integrated view of tests of rationality, market efficiency and the short-run neutrality of monetary policy," Journal of Monetary Economics, Elsevier, vol. 11(1), pages 3-24.
    
    • Andrew B. Abel & Frederic S. Mishkin, 1983. "An Integrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy," NBER Working Papers 0726, National Bureau of Economic Research, Inc.
11. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
12. Robert J. Gordon & James A. Wilcox, 1978. "Monetarist Interpretations of the Great Depression: An Evaluation and Critique," NBER Working Papers 0300, National Bureau of Economic Research, Inc.

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:

1. Why Bernanke’s debt-deflation article is wrong
   by ssumner in The Money Illusion on 2010-11-24 02:51:26
2. Keynes General Theory didn´t make Christy Romer´s Book List on “Learning from the Great Depression”
   by Marcus Nunes in Historinhas on 2012-02-18 22:55:25
3. Keynes General Theory didn´t make Christy Romer´s Book List on “Learning from the Great Depression”
   by Marcus Nunes in Historinhas on 2012-02-18 22:55:25
4. Dealing with the Evidence
   by Jonathan Finegold in Economic Thought on 2013-04-23 17:03:07

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