Abstract

https://ssrn.com/abstract=261153
 
 

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With a Bang, not a Whimper: Pricking Germany's 'Stock Market Bubble' in 1927 and the Slide into Depression


Hans-Joachim Voth


University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

January 18, 2001

U. Pompeu Fabra Economics Working Paper No. 516

Abstract:     
In May 1927, the German central bank intervened indirectly to reduce lending to equity investors. The crash that followed ended the only stock market boom during Germany's relative stabilization 1924-28. This paper examines the factors that lead to the intervention as well as its consequences. We argue that genuine concern about the 'exuberant' level of the stock market, in addition to worries about an inflow of foreign funds, tipped the scales in favour of intervention. The evidence strongly suggests that the German central bank under Hjalmar Schacht was wrong to be concerned about stockprices-there was no bubble. Also, the Reichsbank was mistaken in its belief that a fall in the market would reduce the importance of short-term foreign borrowing, and help to ease conditions in the money market. The misguided intervention had important real effects. Investment suffered, helping to tip Germany into depression.

Number of Pages in PDF File: 43

Keywords: Stock market, foreign lending, fixed exchange rates, asset prices, bubbles, Germany, monetary policy

JEL Classification: E31, E43, E44, N14, N24


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Date posted: February 22, 2001  

Suggested Citation

Voth, Hans-Joachim, With a Bang, not a Whimper: Pricking Germany's 'Stock Market Bubble' in 1927 and the Slide into Depression (January 18, 2001). U. Pompeu Fabra Economics Working Paper No. 516. Available at SSRN: https://ssrn.com/abstract=261153 or http://dx.doi.org/10.2139/ssrn.261153

Contact Information

Hans-Joachim Voth (Contact Author)
University of Zurich - UBS International Center of Economics in Society ( email )
Raemistrasse 71
Zuerich, 8006
Switzerland
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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