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The Sources of Financial Crisis: Pre- and Post-Fed Evidence

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  • Canova, Fabio

Abstract

This paper investigates the generation and the propagation mechanism of currency demand and supply shocks before and after World War I, the structural determinants of the variability of stock prices and interest rates, and the changes introduced by the creation of the Fed on the dynamics of the system. It is shown that in the pre-1914 era external monetary shocks interacted with a seasonal demand for money to produce financial crises. The Fed helped to prevent crises by insulating the U.S. economy from external shocks. A structural vector autoregressive model provides evidence for these claims. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 32 (1991)
Issue (Month): 3 (August)
Pages: 689-713

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Handle: RePEc:ier:iecrev:v:32:y:1991:i:3:p:689-713

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Cited by:
  1. Bańbura, Marta & Giannone, Domenico & Reichlin, Lucrezia, 2008. "Large Bayesian VARs," Working Paper Series 0966, European Central Bank.
  2. James M. Nason & Ellis W. Tallman, 2012. "Business cycles and financial crises: the roles of credit supply and demand shocks," Working Papers 12-24, Federal Reserve Bank of Philadelphia.
  3. Fady Barsoum, 2013. "The Effects of Monetary Policy Shocks on a Panel of Stock Market Volatilities: A Factor-Augmented Bayesian VAR Approach," Working Paper Series of the Department of Economics, University of Konstanz 2013-15, Department of Economics, University of Konstanz.
  4. Ellis W. Tallman & Jon R. Moen, 1990. "Lessons from the panic of 1907," Economic Review, Federal Reserve Bank of Atlanta, issue May, pages 2-13.
  5. Eric Ghysels, 1992. "Christmas, Spring and the Dawning of Economic Recovery," Cowles Foundation Discussion Papers 1027, Cowles Foundation for Research in Economics, Yale University.
  6. Simone Auer, 2014. "Monetary Policy Shocks and Foreign Investment Income: Evidence from a large Bayesian VAR," Working Papers 2014-02, Swiss National Bank.
  7. Kerry A. Odell & Marc D. Weidenmier, 2002. "Real Shock, Monetary Aftershock: The San Francisco Earthquake and the Panic of 1907," NBER Working Papers 9176, National Bureau of Economic Research, Inc.
  8. R. Alton Gilbert, 1998. "Did the Fed's founding improve the efficiency of the U.S. payments system?," Review, Federal Reserve Bank of St. Louis, issue May, pages 121-142.
  9. Kerry Odell & Marc D. Weidenmier, . "Real Shock, Monetary Aftershock: The 1906 San Francisco Earthquake and the Panic of 1907," Claremont Colleges Working Papers 2001-07, Claremont Colleges.
  10. John C. Robertson & Ellis W. Tallman, 1999. "Prior parameter uncertainty: Some implications for forecasting and policy analysis with VAR models," Working Paper 99-13, Federal Reserve Bank of Atlanta.

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