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Bank fragility, "money under the mattress", and long-run growth: US evidence from the "perfect" Panic of 1893

  • Ramírez, Carlos D.

This paper examines how the US financial crisis of 1893 affected state output growth between 1900 and 1930. The results indicate that a 1% increase in bank instability reduced output growth by 2-5%. A comparison of Nebraska, which had one of the highest bank failure rates, with West Virginia, which did not experience a single bank failure, reveals that disintermediation affected growth through a portfolio change among savers: people simply stopped trusting banks. Time series evidence from newspapers indicates that articles containing the words "money hidden" significantly increase after banking crises, then slowly die out.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(09)00127-7
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 12 (December)
Pages: 2185-2198

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:12:p:2185-2198
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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