Uncertainty as a Propagating Force in The Great Depression

J. Ferderer and David A. Zalewski

The Journal of Economic History, 1994, vol. 54, issue 4, 825-849

Abstract: This article argues that the banking crises and collapse of the international gold standard in the early 1930s contributed to the severity of the Great Depression by increasing interest-rate uncertainty. Two pieces of evidence support this conclusion. First, uncertainty (as measured by the risk premium embedded in the term structure of interest rates) rises during the banking crises and is positively linked to financial-market volatility associated with the breakdown in the gold standard. Second, the risk premium explains a significant proportion of the variation in aggregate investment spending during the Great Depression.

Date: 1994
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