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The Effect of Changes in Reserve Requirements During the 1930s: The Evidence from Nonmember Banks

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  • CARGILL, THOMAS F.
  • MAYER, THOMAS

Abstract

Despite the widespread acceptance of Friedman and Schwartz's interpretation of the 1936/37 increase in member bank reserve requirements as the major cause of the 1937/38 recession there is surprisingly little straightforward evidence on this issue, perhaps because data limitations and structural instability preclude econometric modeling. We exploit a simple alternative, comparing member banks with nonmember banks not subject to changes in reserve requirements. The results support the hypothesis that the increase in reserve requirements reduced the availability of bank credit and contributed to the recession.

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  • Cargill, Thomas F. & Mayer, Thomas, 2006. "The Effect of Changes in Reserve Requirements During the 1930s: The Evidence from Nonmember Banks," The Journal of Economic History, Cambridge University Press, vol. 66(2), pages 417-432, June.
    • Handle: RePEc:cup:jechis:v:66:y:2006:i:02:p:417-432_00
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    Cited by:

    1. Calomiris, Charles W. & Mason, Joseph R. & Wheelock, David C., 2011. "Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach," Working Papers 11-03, University of Pennsylvania, Wharton School, Weiss Center.
    2. Nada Mora, 2014. "Reason for Reserve? Reserve Requirements and Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(2-3), pages 469-501, March.
    3. Jaremski, Matthew & Mathy, Gabriel, 2018. "How was the quantitative easing program of the 1930s Unwound?," Explorations in Economic History, Elsevier, vol. 69(C), pages 27-49.
    4. George S. Tavlas, 2016. "New Perspectives on the Great Depression: A Review Essay," International Finance, Wiley Blackwell, vol. 19(3), pages 353-374, December.
    5. Calomiris, Charles W. & Mason, Joseph R. & Wheelock, David C., 2023. "Did doubling reserve requirements cause the 1937–38 recession? New evidence on the impact of reserve requirements on bank reserve demand and lending," Journal of Financial Intermediation, Elsevier, vol. 56(C).
    6. Haelim Park & Patrick Van Horn, 2015. "Did the Reserve Requirement Increases of 1936–37 Reduce Bank Lending? Evidence from a Quasi‐Experiment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(5), pages 791-818, August.
    7. Gabriel P. Mathy, 2014. "Uncertainty Shocks and Equity Return Jumps and Volatility During the Great Depression," Working Papers 2014-02, American University, Department of Economics.
    8. Douglas A. Irwin, 2011. "Gold Sterilization and the Recession of 1937-38," NBER Working Papers 17595, National Bureau of Economic Research, Inc.
    9. Velibor Milošević, 2014. "Use and Limitations of the Reserve Requirement Policy in Montenegro," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 3(2), pages 5-20.
    10. Vu Hong Thai Nguyen & Agyenim Boateng & David Newton, 2015. "Involuntary excess reserves, the reserve requirements and credit rationing in China," Applied Economics, Taylor & Francis Journals, vol. 47(14), pages 1424-1437, March.

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