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

Fabrizio Almeida Marodin, Kris James Mitchener and Gary Richardson

Explorations in Economic History, 2024, vol. 93, issue C

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.

Keywords: Banking panics; Great depression; Contagion; Monetary deflation (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 N22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:exehis:v:93:y:2024:i:c:s0014498324000251

DOI: 10.1016/j.eeh.2024.101589

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