The Great Depression as a Saving Glut

54 Pages Posted: 22 Sep 2020

See all articles by Victor Degorce

Victor Degorce

affiliation not provided to SSRN

Eric Monnet

Paris School of Economics (PSE)

Date Written: September 2020

Abstract

Facing the Great Depression, Keynes blamed the detrimental consequences of precautionary savings on growth (paradox of thrift). Yet, the magnitude, forms and effects of savings accumulation remain unexplored in studies on the international economic crash of the 1930s. Based on new data for 22 countries, we document that the Great Depression was associated with a large international increase in savings institutions' deposits. Banking crises spurred precautionary savings. Panel estimations show a negative conditional correlation between real GDP and deposits in savings institutions when a banking crisis hit. A back-of-the-envelope calculation suggests that the negative effect of precautionary savings on growth was at least as large as the direct effect of the decline in banking activity. The evolution of the saving rate began to reverse as countries left the gold standard.

Keywords: banking crises, Great Depression, paradox of thrift, precautionary savings, Savings Banks

JEL Classification: B22, E21, E51, G01, G21, N1, N2

Suggested Citation

Degorce, Victor and Monnet, Eric, The Great Depression as a Saving Glut (September 2020). Available at SSRN: https://ssrn.com/abstract=3696369

Victor Degorce (Contact Author)

affiliation not provided to SSRN

No Address Available

Eric Monnet

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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