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Arresting Banking Panics: Federal Reserve Liquidity Provision and the Forgotten Panic of 1929

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Author Info

  • Mark Carlson
  • Kris James Mitchener
  • Gary Richardson

Abstract

Scholars differ on whether central bank intervention mitigates banking panics. In April 1929, a fruit fly infestation in Florida forced the U.S. government to quarantine fruit shipments from the state and destroy infested groves. In July, depositors panicked in Tampa and surrounding cities. The Federal Reserve Bank of Atlanta rushed currency to member banks beset by runs. We show that this intervention arrested the panic and estimate that bank failures would have been twice as high without the Federal Reserve’s intervention. Our results suggest that similar interventions may have reduced bank failures during the Great Depression.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/662961
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File URL: http://www.jstor.org/stable/full/10.1086/662961
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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 119 (2011)
Issue (Month): 5 ()
Pages: 889 - 924

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Handle: RePEc:ucp:jpolec:doi:10.1086/662961

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Web page: http://www.journals.uchicago.edu/JPE/

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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. Mark A. Carlson & David C. Wheelock, 2012. "The lender of last resort: lessons from the Fed’s first 100 years," Working Papers 2012-056, Federal Reserve Bank of St. Louis.
  3. Kris James Mitchener & Gary Richardson, 2013. "Shadowy Banks and Financial Contagion during the Great Depression: A Retrospective on Friedman and Schwartz," American Economic Review, American Economic Association, vol. 103(3), pages 73-78, May.

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