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

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  • Albrecht Ritschl
  • Samad Sarferaz

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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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-014.

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Length: 59 pages
Date of creation: Feb 2010
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Handle: RePEc:hum:wpaper:sfb649dp2010-014

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

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  1. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  2. Christopher Otrok & Charles H. Whiteman, 1996. "Baynesian Leading Indicators: Measuring and Predicting Economic Conditions," Macroeconomics 9610002, EconWPA.
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Cited by:
  1. Ralf Martin, 2010. "Productivity Spreads, Market Power Spreads and Trade," CEP Discussion Papers dp0997, Centre for Economic Performance, LSE.
  2. Luis Araujo & Bernardo Guimaraes, 2010. "There Will Be Money," CEP Discussion Papers dp1004, Centre for Economic Performance, LSE.

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