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Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression

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  • Bernanke, Ben S

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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Bibliographic Info

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. 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.
  2. Bernanke, Ben S, 1981. "Bankruptcy, Liquidity, and Recession," American Economic Review, American Economic Association, vol. 71(2), pages 155-59, May.
  3. 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.
  4. 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.
  5. Andrew B. Abel & Frederic S. Mishkin, 1981. "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.
  6. 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.
  7. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  8. 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.
  9. 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.
  10. 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.
  11. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
  12. 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.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Dealing with the Evidence
    by Jonathan Finegold in Economic Thought on 2013-04-23 17:03:07
  2. Why Bernanke’s debt-deflation article is wrong
    by ssumner in The Money Illusion on 2010-11-24 02:51:26
  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. 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
  5. Bank Assets and Bank Runs
    by Jonathan Finegold in Economic Thought on 2014-02-26 19:57:43
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