Uncertainty as a Propagating Force in The Great Depression

1994 ◽  
Vol 54 (4) ◽  
pp. 825-849 ◽  
Author(s):  
J. Peter Ferderer ◽  
David A. Zalewski
Keyword(s):  
Interest Rates ◽  
Great Depression ◽  
Term Structure ◽  
Risk Premium ◽  
Gold Standard ◽  
Significant Proportion ◽  
Banking Crises ◽  
The Great Depression ◽  
Aggregate Investment ◽  
Investment Spending

This article argues that the banking crises and collapse of the international gold standard in the early 1930s contributed to the severity of the Great Depression by increasing interest-rate uncertainty. Two pieces of evidence support this conclusion. First, uncertainty (as measured by the risk premium embedded in the term structure of interest rates) rises during the banking crises and is positively linked to financial-market volatility associated with the breakdown in the gold standard. Second, the risk premium explains a significant proportion of the variation in aggregate investment spending during the Great Depression.

scholarly journals What Ended the Great Depression?

1992 ◽  
Vol 52 (4) ◽  
pp. 757-784 ◽  
Author(s):  
Christina D. Romer
Keyword(s):  
Interest Rates ◽  
Great Depression ◽  
Durable Goods ◽  
Aggregate Demand ◽  
Real Output ◽  
Money Stock ◽  
The Great Depression ◽  
Investment Spending ◽  
The U.S

This paper examines the role of aggregate-demand stimulus in ending the Great Depression. Plausible estimates of the effects of fiscal and monetary changes indicate that nearly all the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. A huge gold inflow in the mid- and late 1930s swelled the money stock and stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. That monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942.

scholarly journals Stock volatility, return jumps and uncertainty shocks during the Great Depression

2016 ◽  
Vol 23 (2) ◽  
pp. 165-192 ◽  
Author(s):  
Gabriel P. Mathy
Keyword(s):  
Time Series ◽  
Great Depression ◽  
New Deal ◽  
Gold Standard ◽  
Primary Source ◽  
Banking Crises ◽  
Historical Narrative ◽  
Stock Volatility ◽  
The Great Depression ◽  
Key Events

There are a multitude of explanations for the depth and length of the Great Depression, of which uncertainty has been proposed as one possible explanation (Romer 1990). The 1930s not only saw extreme declines in output and prices, but stock volatility was also at record highs (Schwert 1989). This high stock volatility was generated by a series of discontinuous jumps as news about uncertainty arrived regularly during the 1930s, as shown by applying the Barndorff-Nielsen and Shephard (2006) test for jumps in a time-series. To provide a more historical narrative for these jumps, I outline some key events during the Great Depression that generated a sense of uncertainty for businesses and households which occurred contemporaneously to these extreme jumps. While much of the literature has placed Roosevelt's New Deal as a primary source of uncertainty, I do not find much evidence for this hypothesis, and instead find that banking crises, the breakdown of the gold standard, popular unrest and uncertainty related to the brewing war in Europe were primarily responsible for both jumps in returns and the uncertainty of the 1930s.

To Raise the Golden Anchor? Financial Crises and Uncertainty During the Great Depression

1999 ◽  
Vol 59 (3) ◽  
pp. 624-658 ◽  
Author(s):  
J. Peter Ferderer ◽  
David A. Zalewski
Keyword(s):  
Economic Growth ◽  
Interest Rate ◽  
Great Depression ◽  
Interwar Period ◽  
Gold Standard ◽  
Financial Crises ◽  
Capital Flight ◽  
The Great Depression ◽  
Interest Rate Volatility

This study examines the interplay between financial crises, uncertainty, and economic growth during the interwar period. Comparing the experiences of ten countries, we provide evidence that reductions in the credibility of a country's commitment to the gold standard generated capital flight and higher interest rate volatility. This volatility, in turn, was inversely correlated with economic growth. These results suggest that financial crises helped propagate the Great Depression, in part, by increasing uncertainty.

scholarly journals Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?

2013 ◽  
Vol 27 (4) ◽  
pp. 65-86 ◽  
Author(s):  
Julio J Rotemberg
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Great Depression ◽  
Federal Reserve ◽  
Bank Loans ◽  
The Great Depression

This paper considers some of the large changes in the Federal Reserve's approach to monetary policy. It shows that, in some important cases, critics who were successful in arguing that past Fed approaches were responsible for mistakes that caused harm succeeded in making the Fed averse to these approaches. This can explain why the Fed stopped basing monetary policy on the quality of new bank loans, why it stopped being willing to cause recessions to deal with inflation, and why it was temporarily unwilling to maintain stable interest rates in the period 1979–1982. It can also contribute to explaining why monetary policy was tight during the Great Depression. The paper shows that the evolution of policy was much more gradual and flexible after the Volcker disinflation, when the Fed was not generally deemed to have made an error.

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