Treatment of the Banking Holiday of March 1933 in Growth Regressions

Abstract

Government intervention during the banking holiday of March 1933 resolved the uncertainty usually created by bank suspensions. Including banking holiday suspensions in growth regressions therefore biases downwards the estimates of the real effects of bank suspensions. In this paper, I propose a way to correct for this bias by adjusting the size of banking holiday suspensions before using them in growth regressions. I also demonstrate that the recovery of the banking sector after the holiday was more expressed in those states that experienced more suspensions, which affects the size of the proposed adjustment.

Keywords: Bank Failures, Banking Holiday, Great Depression, Economic Growth

JEL Classification: E32, G21, L60, N12, N22, N62