Banking Panics and Business Cycles

Gary Gorton

Oxford Economic Papers, 1988, vol. 40, issue 4, 751-81

Abstract: Using a century of newly constructed data, competing theories explaining banking panics are tested. The evidence shows that banking panics during the U.S. national banking era (1865-1914) were the products of revisions in the perceived risk of the banking system based on the arrival of new information. Panics were triggered by a leading indicator of recession. Whenever this variable reached a threshold level, there was a panic. Thus, panics were not random events. The panics of the 1930s, however, did not result from the same pre-Federal Reserve System pattern of behavior. Copyright 1988 by Royal Economic Society.

Date: 1988
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Working Paper: Banking panics and business cycles (1986)
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