Bank Fragility, 'Money Under the Mattress,' and Long-Run Growth: U.S. Evidence from the 'Perfect' Panic of 1893
41 Pages Posted: 21 Jan 2009 Last revised: 14 Mar 2010
Date Written: September 1, 2008
Abstract
This paper examines how the U.S. financial crisis of 1893 affected state output growth between 1900 and 1930. The results indicate that a 1% increase in bank instability reduces output growth by about 5%. A comparison of the cases of Nebraska, with one of the highest bank failure rates, and West Virginia, which did not experience a single bank failure reveals that disintermediation affected growth through a portfolio change among savers - people simply stop trusting banks. Time series evidence from newspapers indicate that articles with the words "money hidden" significantly increase after banking crises, and die off slowly over time.
Keywords: Bank Failures, Panic of 1893, Convergence, Finance-Growth Nexus, Nebraska, West Virginia, Deposits, Money Hidden
JEL Classification: N21, O16
Suggested Citation: Suggested Citation
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