Financial factors and the propagation of the Great Depression

Gustavo Cortes, Bryan Taylor and Marc D. Weidenmier

Journal of Financial Economics, 2022, vol. 145, issue 2, 577-594

Abstract: We investigate the role of forward-looking financial factors in propagating the Great Depression. We find that a new hand-collected bank stock index is better at predicting the onset of the Great Depression than the aggregate stock market or failed bank deposits. The bank stock index explains almost one-third of the fluctuations in industrial production after five years. Analysis disaggregated at each Federal Reserve district shows that bank stocks capture forward-looking information about debt defaults and credit. Our results suggest that future studies of the credit channel during the Great Depression should incorporate bank stocks to better identify the impact of credit crunches on economic activity.

Keywords: Great Depression; Bank stocks; Forward-looking information; Credit channel (search for similar items in EconPapers)
JEL-codes: E32 E37 G21 N12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:2:p:577-594

DOI: 10.1016/j.jfineco.2021.08.018

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