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Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931

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  • Albrecht Ritschl
  • Samad Salferaz

Abstract

This paper examines the role of currency and banking in the German financial crisis of 1931 for both Germany and the U.S. We specify a structural dynamic factor model to identify financial and monetary factors separately for each of the two economies. We find that monetary transmission through the Gold Standard played only a minor role in causing and propagating the crisis, while financial distress was important. We also find evidence of crisis propagation from Germany to the U.S. via the banking channel. Banking distress in both economies was apparently not endogenous to monetary policy. Results confirm Bernanke's (1983) conjecture that an independent, non-monetary financial channel of crisis propagation was operative in the Great Depression.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0977.

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Date of creation: May 2010
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Handle: RePEc:cep:cepdps:dp0977

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Great Depression; 1931 financial crisis; international business cycle transmission; Bayesian factor analysis; currency; banking;

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Cited by:
  1. Albrecht Ritschl, 2012. "Reparations, deficits, and debt default: the Great Depression in Germany," Economic History Working Papers 44335, London School of Economics and Political Science, Department of Economic History.
  2. Ralf Martin, 2010. "Productivity spreads, market power spreads and trade," LSE Research Online Documents on Economics 48912, London School of Economics and Political Science, LSE Library.
  3. Luis Araujo & Bernardo Guimaraes, 2010. "There Will Be Money," CEP Discussion Papers dp1004, Centre for Economic Performance, LSE.
  4. Ralf Martin, 2010. "Productivity Spreads, Market Power Spreads and Trade," CEP Discussion Papers dp0997, Centre for Economic Performance, LSE.
  5. Accominotti, Olivier, 2012. "London Merchant Banks, the Central European Panic, and the Sterling Crisis of 1931," The Journal of Economic History, Cambridge University Press, vol. 72(01), pages 1-43, March.

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