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Uncertainty as a Propagating Force in The Great Depression

Author

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  • Ferderer, J. Peter
  • Zalewski, David A.

Abstract

This article argues that the banking crises and collapse of the international gold standard in the early 1930s contributed to the severity of the Great Depression by increasing interest-rate uncertainty. Two pieces of evidence support this conclusion. First, uncertainty (as measured by the risk premium embedded in the term structure of interest rates) rises during the banking crises and is positively linked to financial-market volatility associated with the breakdown in the gold standard. Second, the risk premium explains a significant proportion of the variation in aggregate investment spending during the Great Depression.

Suggested Citation

  • Ferderer, J. Peter & Zalewski, David A., 1994. "Uncertainty as a Propagating Force in The Great Depression," The Journal of Economic History, Cambridge University Press, vol. 54(4), pages 825-849, December.
  • Handle: RePEc:cup:jechis:v:54:y:1994:i:04:p:825-849_01
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    Cited by:

    1. Mariarosaria Agostino, 2004. "Conditionality, Commitment and Investment Response in LDCs," Economics Working Papers 2004-10, Department of Economics and Business Economics, Aarhus University.
    2. Gabriel P. Mathy, 2020. "How much did uncertainty shocks matter in the Great Depression?," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 14(2), pages 283-323, May.
    3. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 285-317, Autumn.
    4. Mathy, Gabriel & Ziebarth, Nicolas L., 2017. "How Much Does Political Uncertainty Matter? The Case of Louisiana under Huey Long," The Journal of Economic History, Cambridge University Press, vol. 77(1), pages 90-126, March.
    5. Bernard C. Beaudreau, 2017. "Electrification, the Smoot-Hawley Tariff Act and the Decline in Investment Expenditure in 1931–1932: Testing the Excess-Capacity Hypothesis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 23(3), pages 295-308, August.
    6. James Lindley & Clifford Sowell & WM. Mounts, 2001. "Excess reserves during the 1930s: Empirical estimates of the costs of converting unintended cash inventory into income-producing assets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 25(2), pages 135-148, June.
    7. Hartwell, Christopher A., 2018. "The impact of institutional volatility on financial volatility in transition economies," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 598-615.
    8. Thai V. H. Nguyen & Agyenim Boateng & Tra Thi Thu Pham, 2019. "Involuntary excess reserve and heterogeneous transmission of policy rates to bank lending rates in China," Empirical Economics, Springer, vol. 57(3), pages 1023-1044, September.
    9. Mathy, Gabriel & Stekler, Herman, 2017. "Expectations and forecasting during the Great Depression: Real-time evidence from the business press," Journal of Macroeconomics, Elsevier, vol. 53(C), pages 1-15.
    10. Bo Young Chang & Bruno Feunou, 2013. "Measuring Uncertainty in Monetary Policy Using Implied Volatility and Realized Volatility," Staff Working Papers 13-37, Bank of Canada.
    11. Schläger, Dan, 2024. "Unmasking the significance of uncertainty: a case study of the German interwar economy (1919-1935)," LSE Research Online Documents on Economics 125837, London School of Economics and Political Science, LSE Library.

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