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Bank Failures and Output During the Great Depression

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  • Jeffrey A. Miron
  • Natalia Rigol

Abstract

In response to the Financial Crisis of 2008, macroeconomic policymakers employed a range of tools designed to prevent failures of large, complex financial institutions ("banks"). The Treasury and the Fed justified these actions by arguing that bank failures exacerbate output declines, rather than just reflecting output losses that have already occurred. This view is consistent with economic models based on credit market imperfections, but it is an empirical question as to whether the feedback from failures to output losses is substantial. This paper examines the relation between bank failures and output by re-considering Bernanke's (1983) analysis of the Great Depression. We find little indication that bank failures exerted a substantial or sustained impact on output during this period.

Suggested Citation

  • Jeffrey A. Miron & Natalia Rigol, 2013. "Bank Failures and Output During the Great Depression," NBER Working Papers 19418, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19418
    Note: ME
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    References listed on IDEAS

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    1. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
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    3. Andreas Fuster & Paul S. Willen, 2010. "$1.25 Trillion is still real money : some facts about the effects of the Federal Reserve’s mortgage market investments," Public Policy Discussion Paper 10-4, Federal Reserve Bank of Boston.
    4. Ben Bemanke & Harold James, 1991. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Chapters, in: Financial Markets and Financial Crises, pages 33-68, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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