Money and Interest Rates in the United States during the Great Depression
AbstractThis paper reexamines the debate over whether the United States fell into a liquidity trap in the 1930s. We first review the literature on the liquidity trap focusing on Keynes's discussion of “absolute liquidity preference” and the division that soon emerged between Keynes, who believed that a liquidity trap had not been reached, and the American Keynesians who believed that the United States had fallen into a liquidity trap. We then explore several interest rates that have been neglected in previous analyses: yields on corporate debt (from Aaa to junk), bank lending rates, and mortgage rates. In general, our results strengthen the case for believing that there was no liquidity trap in the 1930s in the sense of one that covered the full spectrum of interest rates. The small segment of time in which a liquidity trap might have been present, however, makes drawing firm conclusions risky.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16204.
Date of creation: Jul 2010
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Find related papers by JEL classification:
- N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
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