1930: First Modern Crisis

Gary Gorton, Toomas Laarits and Tyler Muir

No 25452, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Modern financial crises are difficult to explain because they do not always involve bank runs, or the bank runs occur late. For this reason, the first year of the Great Depression, 1930, has remained a puzzle. Industrial production dropped by 20.8 percent despite no nationwide bank run. Using cross-sectional variation in external finance dependence, we demonstrate that banks' decision to not use the discount window and instead cut back lending and invest in safe assets can account for the majority of this decline. In effect, the banks ran on themselves before the crisis became evident.

JEL-codes: E02 E3 G01 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-fdg, nep-his and nep-mac
Note: CF DAE EFG ME
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Citations: View citations in EconPapers (3)

Published as Gary Gorton & Toomas Laarits & Tyler Muir, 2023. "1930: first modern crisis," Financial History Review, vol 30(3), pages 277-307.

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