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Real Shock, Monetary Aftershock: The San Francisco Earthquake and the Panic of 1907

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  • Kerry A. Odell
  • Marc D. Weidenmier

Abstract

Economists have long studied the relationship between the real and monetary sectors. We examine the macroeconomic effects of the 1906 San Francisco earthquake, a shock that immediately reduced United States. GNP by 1.5-1.8 percentage points. The quake's impact manifested itself in gold flows, as British insurance companies paid their San Francisco claims out of home funds in the fall of 1906. The capital outflow prompted the Bank of England to raise interest rates and discriminate against American finance bills. British bank policy pushed the US into recession and set the stage for the 1907 financial crisis. The 1907 panic led to the formation of the National Monetary Commission whose proposals recommended the creation of the Federal Reserve. In this study, we identify the San Francisco earthquake as the shock that triggered the chain of events that culminated in the panic of 1907.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9176.

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Date of creation: Sep 2002
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Handle: RePEc:nbr:nberwo:9176

Note: DAE ME
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  1. Neal, Larry, 2000. "A Shocking View of Economic History," The Journal of Economic History, Cambridge University Press, vol. 60(02), pages 317-334, June.
  2. Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, vol. 89(353), pages 13-33, March.
  3. Ellis W. Tallman & Jon R. Moen, 1993. "Liquidity shocks and financial crises during the national banking era," Working Paper 93-10, Federal Reserve Bank of Atlanta.
  4. Charles W. Calomiris & Gary Gorton, . "The Origins of Banking Panics: Models, Facts, and Bank Regulation," Rodney L. White Center for Financial Research Working Papers 11-90, Wharton School Rodney L. White Center for Financial Research.
  5. Canova, Fabio, 1991. "The Sources of Financial Crisis: Pre- and Post-Fed Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 689-713, August.
  6. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
  7. Michael D. Bordo & Antu P. Murshid, 2000. "Are Financial Crises Becoming Increasingly More Contagious? What is the Historical Evidence on Contagion?," NBER Working Papers 7900, National Bureau of Economic Research, Inc.
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Cited by:
  1. Eric Hilt, 2009. "Wall Street's First Corporate Governance Crisis: The Panic of 1826," NBER Working Papers 14892, National Bureau of Economic Research, Inc.

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