Contagion of Fear

Kris Mitchener and Gary Richardson

No 14510, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Great Depression is infamous for banking panics, which were a symptomatic of a phenomenon that scholars have labeled a contagion of fear. Using geocoded, microdata on bank distress, we develop metrics that illuminate the incidence of these events and how banks that remained in operation after panics responded. We show that between 1929-32 banking panics reduced lending by 13%, relative to its 1929 value, and the money multiplier and money supply by 36%. The banking panics, in other words, caused about 41% of the decline in bank lending and about nine-tenths of the decline in the money multiplier during the Great Depression.

Keywords: Banking panics; Great depression; Contagion; Monetary deflation (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 N22 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-ban, nep-his, nep-mac and nep-mon
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Working Paper: Contagion of Fear (2020)
Working Paper: Contagion of Fear (2020)
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