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Droughts, Floods and Financial Distress in the United States

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  • John Landon-Lane
  • Hugh Rockoff
  • Richard H. Steckel

Abstract

The relationships among the weather, agricultural markets, and financial markets have long been of interest to economic historians, but relatively little empirical work has been done. We push this literature forward by using modern drought indexes, which are available in detail over a wide area and for long periods of time to perform a battery of tests on the relationship between these indexes and sensitive indicators of financial stress. The drought indexes were devised by climate historians from instrument records and tree rings, and because they are unfamiliar to most economic historians and economists, we briefly describe the methodology. The financial literature in the area can be traced to William Stanley Jevons, who connected his sun spot theory to rainfall patterns. The Dust bowl of the 1930s brought the climate-finance link to the attention of the general public. Here we assemble new evidence to test various hypotheses involving the impact of extreme swings in moisture on financial stress.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15596.

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Date of creation: Dec 2009
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Publication status: published as Droughts, Floods and Financial Distress in the United States , John Landon-Lane, Hugh Rockoff, Richard H. Steckel. in The Economics of Climate Change: Adaptations Past and Present , Libecap and Steckel. 2011
Handle: RePEc:nbr:nberwo:15596

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  1. Gary D. Libecap & Zeynep Kocabiyik Hansen, 2000. ""Rain Follows the Plow" and Dryfarming Doctrine: The Climate Information Problem and Homestead Failure in the Upper Great Plains, 1890-1925," NBER Historical Working Papers 0127, National Bureau of Economic Research, Inc.
  2. Mark Carlson & Kris James Mitchener, 2007. "Branch Banking as a Device for Discipline: Competition and Bank Survivorship During the Great Depression," NBER Working Papers 12938, National Bureau of Economic Research, Inc.
  3. Bordo, Michael D. & Rockoff, Hugh & Redish, Angela, 1994. "The U.S. Banking System From a Northern Exposure: Stability versus Efficiency," The Journal of Economic History, Cambridge University Press, vol. 54(02), pages 325-341, June.
  4. Ramirez, Carlos D., 2003. "Did branch banking restrictions increase bank failures? Evidence from Virginia and West Virginia in the late 1920s," Journal of Economics and Business, Elsevier, vol. 55(4), pages 331-352.
  5. Zeynep K. Hansen & Gary D. Libecap, 2003. "Small Farms, Externalities, and the Dust Bowl of the 1930's," NBER Working Papers 10055, National Bureau of Economic Research, Inc.
  6. Landon-Lane, John & Rockoff, Hugh, 2007. "The origin and diffusion of shocks to regional interest rates in the United States, 1880-2002," Explorations in Economic History, Elsevier, vol. 44(3), pages 487-500, July.
  7. James, John A., 1976. "The Evolution of the National Money Market, 1888–1911," The Journal of Economic History, Cambridge University Press, vol. 36(01), pages 271-275, March.
  8. Alston, Lee J., 1983. "Farm Foreclosures in the United States During the Interwar Period," The Journal of Economic History, Cambridge University Press, vol. 43(04), pages 885-903, December.
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Cited by:
  1. Benjamin Chabot & Charles C. Moul, 2013. "Bank panics, government guarantees, and the long-run size of the financial sector: evidence from free-banking America," Working Paper Series WP-2013-03, Federal Reserve Bank of Chicago.
  2. Mathieu Couttenier & Raphael Soubeyran, 2010. "Drought and Civil War in Sub-Saharan Africa," Working Papers 10-13, LAMETA, Universtiy of Montpellier, revised Dec 2012.
  3. Alex Bowen & Sarah Cochrane & Samuel Fankhauser, 2012. "Climate change, adaptation and economic growth," Climatic Change, Springer, vol. 113(2), pages 95-106, July.
  4. Ian Wing & Karen Fisher-Vanden, 2013. "Confronting the challenge of integrated assessment of climate adaptation: a conceptual framework," Climatic Change, Springer, vol. 117(3), pages 497-514, April.

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