 Is deflation cause for panic? Evidence from the National Banking eraJournal of Macroeconomics, 2024, vol. 82, issue C Abstract: This paper examines the relationship between deflation, real output, and bank panics in the United States during the National Banking era from 1868 to 1913, a period marked by frequent deflationary episodes and many bank panics. Using a structural vector autoregression with sign restrictions, I distinguish between deflation as part of negative aggregate demand shocks and deflation as part of positive aggregate supply shocks. My findings indicate that negative aggregate demand shocks are associated with an increased likelihood of bank panics, while positive aggregate supply shocks are not. I then bolster these findings with case studies of the major bank panics of 1873, 1893, and 1907, analyzing stock data, bank clearing data, and narrative evidence. Combined, these results suggest that unexpected declines in nominal income, rather than deflation itself, contribute to financial stress, aligning with recent theoretical work. Keywords: Bank panics; Deflation; U.S. monetary history; Sign restrictions (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:82:y:2024:i:c:s0164070424000569 DOI: 10.1016/j.jmacro.2024.103641 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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