Financial Fragility and the Great Depression

Russell Cooper and P. Dean Corbae

No 6094, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze a financial collapse, such as the one which occurred during the Great Depression, from the perspective of a monetary model with multiple equilibria. The economy we consider contains financial fragility due to increasing returns to scale in the intermediation process. Intermediaries provide the link between savers and firms who require working capital for production. Fluctuations in the intermediation process are driven by variations in the confidence agents place in the financial system. Our model matches quite closely the qualitative movements in some financial and real variables (the currency/deposit ratio, ex-post real interest rates, the level of intermediated activity, deflation, employment and production) during the Great Depression period.

JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 1997-07
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Cooper, Russell and Dean Corbae. "Financial Collapse: A Lesson From The Great Depression," Journal of Economic Theory, 2002, v107(2,Dec), 159-190.

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