Financial Boom and Bust in the 19th Century: How Bad Was Germany’s Gründerkrise?

The Gründerkrise of the 1870s marks Germany’s first major experience with financial boom and bust. The assessment of its real impact has, however, been hampered by the non-availability of comprehensive and reliable national accounts data for the 19th century. This short paper seeks to overcome such difficulties by combining common factor analysis as proposed by Sarferaz and Uebele (2009) with financial filtering a la Borio et al. (2013) and Berger et al. (2015). The results confirm that the Gründerkrise was by far modern Germany’s worst peacetime economic crisis prior to the Great Depression in the late 1920s. Financial and monetary forces amplified the boom of 1871-73, deepened the downturn in 1874-79, and acted as a drag on the recovery until well into the 1880s. The pattern resembles modern ‘balance sheet recessions’, i.e., protracted economic weakness in the aftermath of financial crises.