Contagion of Fear

71 Pages Posted: 16 Mar 2020 Last revised: 22 May 2023

See all articles by Kris James Mitchener

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department; National Bureau of Economic Research (NBER); CEPR; CAGE; CESifo (Center for Economic Studies and Ifo Institute)

Gary Richardson

University of California, Irvine - Department of Economics

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Date Written: March 2020

Abstract

The Great Depression is infamous for banking panics, which were a symptomatic of a phenomenon that scholars have labeled a contagion of fear. Using geocoded, microdata on bank distress, we develop metrics that illuminate the incidence of these events and how banks that remained in operation after panics responded. We show that between 1929-32 banking panics reduced lending by 13%, relative to its 1929 value, and the money multiplier and money supply by 36%. The banking panics, in other words, caused about 41% of the decline in bank lending and about nine-tenths of the decline in the money multiplier during the Great Depression.

Suggested Citation

Mitchener, Kris James and Richardson, Gary, Contagion of Fear (March 2020). NBER Working Paper No. w26859, Available at SSRN: https://ssrn.com/abstract=3554880

Kris James Mitchener (Contact Author)

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Gary Richardson

University of California, Irvine - Department of Economics ( email )

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