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Banking panics and business cycles

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  • Gary Gorton

Abstract

Using a century of newly constructed data, competing theories explaining banking panics are tested. The evidence shows that banking panics during the U.S. national banking era (1865-1914) were the products of revisions in the perceived risk of the banking system based on the arrival of new information. Panics were triggered by a leading indicator of recession. Whenever this variable reached a threshold level, there was a panic. Thus, panics were not random events. The panics of the 1930s, however, did not result from the same pre-Federal Reserve System pattern of behavior. Copyright 1988 by Royal Economic Society.
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Suggested Citation

  • Gary Gorton, 1986. "Banking panics and business cycles," Working Papers 86-9, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:86-9
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    References listed on IDEAS

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    1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    2. Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, vol. 68(2), pages 275-308, March.
    3. Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July.
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    Keywords

    Bank failures ; Business cycles ; Depressions;

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