Surviving the Great Depression: Firms, Workers, and Banks
Friday, Jan. 5, 2018 8:00 AM - 10:00 AM
- Chair: Charles Calomiris, Columbia University
Contagion of Fear
AbstractUsing new archival data, Mitchener and Richardson directly test for the existence of Depression‐era panics and assess their effects on high‐powered money and on bank lending – a previously unexplored but related channel through which banking panics could have magnified the Great Depression. They will extend The Friedman and Schwartz analysis to calculate the economy‐wide decline in lending due to panicky-depositor withdrawals.
Financial Frictions and Employment During the Great Depression
AbstractWe provide new evidence that a disruption in credit supply played a quantitatively significant role in the unprecedented contraction of employment during the Great Depression. To analyze the role of financing frictions in firms' employment decisions, we use a novel, hand-collected dataset of large industrial firms. Our identification strategy exploits preexisting variation in the need to raise external funds at a time when public bond markets essentially froze. Local bank failures inhibited firms' ability to substitute public debt for private debt, which exacerbated financial constraints. We estimate a large and negative causal effect of financing frictions on firm employment. Interpreting the estimated elasticities through the lens of a simple structural model, we find that the lack of access to credit may have accounted for 10% to 33% of the aggregate decline in employment of large firms between 1928 and 1933.
Federal Reserve Board
- N0 - General
- G0 - General