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Financial market shocks during the Great Depression

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Abstract

This study examines the effect of shocks observed in financial markets on output and employment during the Great Depression. We present three main findings. First, an adverse financial shock leads to a decline in the manufacturing sector's output and employment that peaks about 11 months afterward. Next, this shock has a much greater impact on the durables sector than the nondurables sector. Last, continuing financial market weakness in 1933 and 1934 may have restrained the recovery from the Great Depression. The findings suggest that financial market weakness contributed to the length and depth of the Great Depression, and that this occurred mainly through the investment channel. In addition, we use the estimates from the Great Depression data to evaluate the effect of recent financial market disruptions.

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  • Alycia Chin & Missaka Warusawitharana, 2010. "Financial market shocks during the Great Depression," Finance and Economics Discussion Series 2010-22, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2010-22
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    Cited by:

    1. Breitenlechner, Max & Mathy, Gabriel P. & Scharler, Johann, 2021. "Decomposing the U.S. Great Depression: How important were loan supply shocks?," Explorations in Economic History, Elsevier, vol. 79(C).

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    Keywords

    Finance; Industrial productivity;

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