Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach

Charles Calomiris, Joseph Mason and David Wheelock

No 16688, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy. Using microeconomic data to gauge the fundamental reserve demands of Fed member banks, we find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements.

JEL-codes: E51 E58 G21 G28 N12 N22 (search for similar items in EconPapers)
Date: 2011-01
Note: DAE EFG ME
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Citations: View citations in EconPapers (20)

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Working Paper: Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach (2011)
Working Paper: Did doubling reserve requirements cause the recession of 1937-1938? a microeconomic approach (2011)
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