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

Research, Preprint OPEN
Albrecht Ritschl ; Samad Salferaz (2010)
  • Publisher: SFB 649, Economic Risk Berlin
  • Subject: C53 | USA | Deutschland | E37 | N12 | banking | N13 | international business cycle transmission | Währungspolitik | currency | Geldpolitik | Wirtschaftsgeschichte | Transmissionsmechanismus | Goldwährung | Great Depression | E47 | Bankenliquidität | 1931 financial crisis | Great Depression; 1931 financial crisis; international business cycle transmission; Bayesian factor analysis; currency; banking | Finanzmarktkrise | Great Depression, 1931 financial crisis, international business cycle transmission, Bayesian factor analysis, currency, banking | 1931 financial crisis; banking; Bayesian factor analysis; currency; Great Depression; international business cycle transmission | Bayesian factor analysis
    • jel: jel:E47 | jel:E37 | jel:N13 | jel:N12 | jel:C53
      ddc: ddc:330

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.
  • References (41)
    41 references, page 1 of 5

    Accominotti, O. (2009): \London Merchant Banks, the Central European Panic, and the Sterling Crisis of 1931," mimeo, Geneva Graduate Institute.

    Adalet, M. (2005): \Fundamentals, Capital Flows, and Capital Flight: The German Banking Crisis of 1931," mimeo, University of California at Berkeley.

    Amir Ahmadi, P., and A. Ritschl (2009): \Monetary Policy During the Great Depression: A Bayesian FAVAR Approach," CEPR Discussion Paper, 7546.

    Barro, R., and J. Ursua (2008): \Consumption Disasters Since 1870," Brookings Papers on Economic Activity, pp. 225{350.

    Bernanke, B. (1983): \Nonmonetary E ects of the Financial Crisis in the Propagation of the Great Depression," American Economic Review, 73, 257{276.

    Bernanke, B., J. Boivin, and P. Eliasz (2005): \Measuring the E ects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," Quarterly Journal of Economics, 120, 387{422.

    Bernanke, B., and K. Carey (1996): \Nominal Wage Stickiness and Aggregate Supply in the Great Depression," Quarterly Journal of Economics, 111, 853{83.

    Bernanke, B., and H. James (1991): \The Gold Standard, De ation, and Financial Crisis in the Great Depression: An International Comparison," in Financial Markets and Financial Crisis, ed. by G. Hubbard. Chicago University Press, Chicago.

    Born, K. E. (1967): Die deutsche Bankenkrise 1931. Piper, Munich.

    Calvo, G. A., A. Izquierdo, and E. Talvi (2006): \Sudden Stops and Phoenix Miracles in Emerging Markets," American Economic Review, 96, 405{410.

  • Metrics
    No metrics available
Share - Bookmark