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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- Hanes, Christopher, 2006. "The Liquidity Trap and U.S. Interest Rates in the 1930s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 163-194, February.
- Ben S. Bernanke & Vincent R. Reinhart, 2004. "Conducting Monetary Policy at Very Low Short-Term Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 85-90, May.
- Philip Turner, 2011. "Fiscal Dominance and the Long-Term Interest Rate," FMG Special Papers sp199, Financial Markets Group.
- Barens, Ingo, 2011. "“To use the words of Keynes...” Olivier J. Blanchard on Keynes and the 'Liquidity Trap'," Darmstadt Discussion Papers in Economics 55833, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
- Geoff Tily, 2012. "Keynes’s monetary theory of interest," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 51-81 Bank for International Settlements.
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