Bank Failures and Output During the Great Depression

17 Pages Posted: 14 Sep 2013 Last revised: 29 Sep 2013

See all articles by Jeffrey A. Miron

Jeffrey A. Miron

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Natalia Rigol

Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: September 2013

Abstract

In response to the Financial Crisis of 2008, macroeconomic policymakers employed a range of tools designed to prevent failures of large, complex financial institutions ("banks"). The Treasury and the Fed justified these actions by arguing that bank failures exacerbate output declines, rather than just reflecting output losses that have already occurred. This view is consistent with economic models based on credit market imperfections, but it is an empirical question as to whether the feedback from failures to output losses is substantial.This paper examines the relation between bank failures and output by re-considering Bernanke's (1983) analysis of the Great Depression. We find little indication that bank failures exerted a substantial or sustained impact on output during this period.

Suggested Citation

Miron, Jeffrey A. and Rigol, Natalia, Bank Failures and Output During the Great Depression (September 2013). NBER Working Paper No. w19418. Available at SSRN: https://ssrn.com/abstract=2325792

Jeffrey A. Miron (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Natalia Rigol

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

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