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Asset Markets and Financial Crises in Historical Perspective

Paper Session

Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, L406
Hosted By: Economic History Association
  • Chair: Matthew Jaremski, Utah State University

Could a Large-scale Asset Purchase Programme Have Mitigated the Great Depression?

Rebecca Stuart
Central Bank of Ireland
Garo Garabedian
Central Bank of Ireland and Ghent University


The Federal Reserves actions - or lack thereof - during the Great Depression have been much debated in the literature (Friedman and Schwarz (1963), Temin (1989), Eichengreen (1992), Romer and Hsieh (2006)). In this paper, we focus on the purchases of government securities by the Federal Reserve over a four-month period in 1932. Using a Bayesian VAR model, we estimate the effect of an extension of this programme in conjunction with an interest rate cut on a range of variables capturing prices, output and macro-financial linkages. Our results indicate that this policy would have substantially shortened and reduced the impact of the Great Depression on the real economy in the US. However, the associated increase in the money supply would have had a large impact on the exchange rate, forcing the US off the gold standard. In this sense, it was infeasible for the Fed to implement these policies without political support.

Taming the Global Financial Cycle: Central Bank Balance Sheets and the Sterilization of Capital Flows under the Classical Gold Standard (1890s – 1914)

Eric Monnet
Bank of France, Paris School of Economics & CEPR
Matthias Morys
University of York


Countries wish to reap the benefits of financial integration while shielding themselves from the vagaries of international financial markets. Can they have it both ways? Are central banks able to isolate their domestic economy by offsetting the effects of capital flows, or are they fully constrained by international financial conditions and/or their exchange-rate regime? We provide an answer for the First Age of Globalisation based on an exceptionally detailed and standardized database of monthly balance sheets of 21 central banks (1891-1913) found in the archives of the Bank of France. Investigating the impact of a global interest rate shock on the exchange-rate, the interest rate and the central bank balance sheet, we find that not a single country played by the “rules of the game.” Core countries typically sterilized capital flows, whereas peripheral countries relied on convertibility restrictions to avoid reserve losses. Countries off gold exhibited remarkably few links to international financial markets. Our findings suggest that the Classical Gold Standard was an environment of trilemma rather than dilemma, but central banks were able to use a variety of tools to mitigate the adverse effects of financial integration

A Chronology of United States Asset Price Bubbles, 1825-1929

Andrew J. Jalil
Occidental College
Matthew J. Botsch
Bowdoin College


Asset price bubbles have played an important role in the two most severe downturns in U.S. economic history of the past century: the Great Contraction of 1929-33 and the Great Recession of 2007-09. However, little is known about whether these episodes are typical. We develop a new chronology of U.S. asset price bubbles between 1825-1929, using a narrative approach. We read all articles from more than a century's worth of financial and business newspapers and identify bubbles based on contemporaneous descriptions. We use our new chronology to investigate the relationship between bubbles and the macroeconomy. Does the typical bubble "pop" or merely fizzle out? Are popping bubbles associated with banking panics? What types of bubbles pose greater danger of spilling over onto the broader economy? Finally, we investigate what lessons modern policymakers can take from connections between credit conditions and 19th-Century asset price bubbles.

Is bad news ever good for stocks? The importance of time-varying war risk and stock returns

Gertjan Verdickt
University of Antwerp


I construct two monthly search-based indices of Threat and Act of war, based on a textual analysis and human reading of war news articles. I document that an increase in these war risk indices leads to a decrease in stock returns contemporaneously. There is strong evidence of mean-reversion following an increase in the level of Threat. After an increase in the level of Act, there is a significant negative drift in stock returns. Overall, stock returns are predominately explained by changes in risk premia rather than cash-flows or interest rates. There is also some evidence of the importance of proximity to military conflicts.
Gabe Mathy
American University
Marc Weidenmier
Chapman University
Eric Hilt
Wellesley College
Sandile Hlatshwayo
International Monetary Fund
JEL Classifications
  • N1 - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
  • N2 - Financial Markets and Institutions