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Bank fragility, "money under the mattress", and long-run growth: US evidence from the "perfect" Panic of 1893

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  • Ramírez, Carlos D.

Abstract

This paper examines how the US financial crisis of 1893 affected state output growth between 1900 and 1930. The results indicate that a 1% increase in bank instability reduced output growth by 2-5%. A comparison of Nebraska, which had one of the highest bank failure rates, with West Virginia, which did not experience a single bank failure, reveals that disintermediation affected growth through a portfolio change among savers: people simply stopped trusting banks. Time series evidence from newspapers indicates that articles containing the words "money hidden" significantly increase after banking crises, then slowly die out.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 12 (December)
Pages: 2185-2198

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:12:p:2185-2198

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Bank failures Panic of 1893 Convergence Finance-growth nexus Nebraska West Virginia Deposits Money hidden;

References

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Cited by:
  1. Kupiec, Paul H. & Ramirez, Carlos D., 2013. "Bank failures and the cost of systemic risk: Evidence from 1900 to 1930," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 285-307.
  2. Scott Fulford & Felipe Schwartzman, 2013. "The credibility of exchange rate pegs and bank distress in historical perspective: lessons from the national banking era," Working Paper 13-18, Federal Reserve Bank of Richmond.

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