Money and Interest Rates in the United States During the Great Depression

43 Pages Posted: 26 Jul 2010 Last revised: 27 Jul 2010

See all articles by Peter Basile

Peter Basile

Rutgers, The State University of New Jersey - Department of Economics

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics

Hugh Rockoff

Newark College of Arts & Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 2010

Abstract

This paper reexamines the debate over whether the United States fell into a liquidity trap in the 1930s. We first review the literature on the liquidity trap focusing on Keynes's discussion of "absolute liquidity preference" and the division that soon emerged between Keynes, who believed that a liquidity trap had not been reached, and the American Keynesians who believed that the United States had fallen into a liquidity trap. We then explore several interest rates that have been neglected in previous analyses: yields on corporate debt (from Aaa to junk), bank lending rates, and mortgage rates. In general, our results strengthen the case for believing that there was no liquidity trap in the 1930s in the sense of one that covered the full spectrum of interest rates. The small segment of time in which a liquidity trap might have been present, however, makes drawing firm conclusions risky.

Suggested Citation

Basile, Peter and Landon-Lane, John and Rockoff, Hugh T., Money and Interest Rates in the United States During the Great Depression (July 2010). NBER Working Paper No. w16204, Available at SSRN: https://ssrn.com/abstract=1648004

Peter Basile (Contact Author)

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

Hugh T. Rockoff

Newark College of Arts & Sciences - Department of Economics ( email )

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Newark, NJ 07102
United States
732-932-7857 (Phone)
732-932-7416 (Fax)

National Bureau of Economic Research (NBER)

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