Re-examining the contributions of money and banking shocks to the U.S. Great Depression

Harold Cole () and Lee Edward Ohanian ()

No 270, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This paper quantitatively evaluates the hypothesis that deflation can account for much of the Great Depression (1929–33). We examine two popular explanations of the Depression: (1) The “high wage” story, according to which deflation, combined with imperfectly flexible wages, raised real wages and reduced employment and output. (2) The “bank failure” story, according to which deflationary money shocks contributed to bank failures and to a reduction in the efficiency of financial intermediation, which in turn reduced lending and output. We evaluate these stories using general equilibrium business cycle models, and find that wage shocks and banking shocks account for a small fraction of the Great Depression. We also find that some other predictions of the theories are at variance with the data.

Keywords: Monetary policy; Depressions; Deflation (Finance); Banks and banking (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-his and nep-mon
Date: 2000
View list of references View citations in EconPapers

Downloads: (external link)
http://minneapolisfed.org/research/sr/sr270.pdf (application/pdf)

Related works:
Chapter: Re-Examining the Contributions of Money and Banking Shocks to the U.S. Great Depression (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedmsr:270

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().