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Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931

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  • Ritschl, Albrecht
  • Sarferaz, Samad

Abstract

This paper examines the role of currency and banking in the German financial crisis of 1931 for both Germany and the U.S. We specify a structural dynamic factor model to identify financial and monetary factors separately for each of the two economies. We find that monetary transmission through the Gold Standard played only a minor role in causing and propagating the crisis, while financial distress was important. We also find evidence of crisis propagation from Germany to the U.S. via the banking channel. Banking distress in both economies was apparently not endogenous to output or monetary policy. Results confirm Bernanke's (1983) conjecture that an independent, non-monetary financial channel of crisis propagation was operative in the Great Depression.

Suggested Citation

  • Ritschl, Albrecht & Sarferaz, Samad, 2009. "Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931," CEPR Discussion Papers 7610, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7610
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    References listed on IDEAS

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    Cited by:

    1. Accominotti, Olivier, 2012. "London Merchant Banks, the Central European Panic, and the Sterling Crisis of 1931," The Journal of Economic History, Cambridge University Press, vol. 72(01), pages 1-43, March.
    2. Albrecht Ritschl, 2012. "Reparations, Deficits, and Debt Default: the Great Depression in Germany," CEP Discussion Papers dp1149, Centre for Economic Performance, LSE.
    3. Luis Araujo & Bernardo Guimaraes, 2010. "There Will Be Money," CEP Discussion Papers dp1004, Centre for Economic Performance, LSE.
    4. Martin, Ralf, 2010. "Productivity spreads, market power spreads and trade," LSE Research Online Documents on Economics 48912, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    1931 financial crisis; banking; Bayesian factor analysis; currency; Great Depression; international business cycle transmission;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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