With a Bang, not a Whimper: Pricking Germany's “Stock Market Bubble” in 1927 and the Slide into Depression

Hans-Joachim Voth

The Journal of Economic History, 2003, vol. 63, issue 1, 65-99

Abstract: In May 1927, the German central bank intervened indirectly to reduce lending to equity investors. The crash that followed ended the only stock market boom during Germany's relative stabilization 1924–1928. The evidence strongly suggests that the German central bank under Hjalmar Schacht was wrong to be concerned about stock prices—there was no bubble. Also, the Reichsbank was mistaken in its belief that a fall in the market would reduce the importance of short-term foreign borrowing and improve conditions in the money market. The misguided intervention had important real effects. Investment suffered, helping to tip Germany into depression.

Date: 2003
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