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Contagion of fear: Panics, money, and the Great Depression

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  • Marodin, Fabrizio Almeida
  • Mitchener, Kris James
  • Richardson, Gary

Abstract

Despite its centrality in debates about the causes and consequences of the Great Depression, banking panics’ impact on the money supply during this period remains a subject of ongoing debate. Before 1936, the Fed's decentralized structure meant that panics impacted money creation regionally while monetary impulses impacted bank stability nationally. We use this structure and newly digitized data to construct monetary aggregates at the Federal Reserve district level and apply a novel identification strategy that allows us to isolate the panics’ impact on monetary aggregates. We find that panics reduced the money supply by 27%, or in other words, that panics caused most of the decline in the money supply from June 1929 to December 1932.

Suggested Citation

  • Marodin, Fabrizio Almeida & Mitchener, Kris James & Richardson, Gary, 2024. "Contagion of fear: Panics, money, and the Great Depression," Explorations in Economic History, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:exehis:v:93:y:2024:i:c:s0014498324000251
    DOI: 10.1016/j.eeh.2024.101589
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    More about this item

    Keywords

    Banking panics; Great depression; Contagion; Monetary deflation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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