The Real Effects of Fed Intervention During the 1920-1921 Depression

61 Pages Posted: 16 Sep 2018 Last revised: 21 Jul 2019

See all articles by Bruce I. Carlin

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

William Mann

Emory University - Department of Finance

Date Written: August 31, 2018

Abstract

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

Carlin, Bruce I. and Mann, William, The Real Effects of Fed Intervention During the 1920-1921 Depression (August 31, 2018). Available at SSRN: https://ssrn.com/abstract=3242429 or http://dx.doi.org/10.2139/ssrn.3242429

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

William Mann (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

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