The Real Effects of Fed Intervention During the 1920-1921 Depression
61 Pages Posted: 16 Sep 2018 Last revised: 21 Jul 2019
Date Written: August 31, 2018
We provide novel evidence of how discount rates affected lending and output during and after the 1920-1921 depression. Our identification strategy exploits county-level variation in access to the discount window and hand-collected data on banking and agriculture in Illinois. High discount rates decreased bank lending and forced farmers to liquidate crops at lower prices, temporarily lowering agricultural output. However, they also caused debt-to-output levels to be persistently lower, lasting into the Great Depression, and accompanied by consolidation of farms and reallocation of land. Compared to conventional wisdom, our findings suggest a less negative interpretation of the Fed’s actions during 1920-1921.
Keywords: History, Banking, Federal Reserve, Discount Window
JEL Classification: N12, E52, E58, G21
Suggested Citation: Suggested Citation