Working Paper: NBER ID: w1054
Authors: Ben S. Bernanke
Abstract: This paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period. Our approach is complementary to that of Friedman and Schwartz, who emphasized the monetary impact of the bank failures; we focus on non-monetary (primarily credit-related) aspects of the financial sector--output link and consider the problems of debtors as well as those of the banking system. We argue that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand. Evidence suggests that effects of this type can help explain the unusual length and depth of the Great Depression.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial crises (G01) | reduced efficiency of credit allocation (D61) |
| reduced efficiency of credit allocation (D61) | increased intermediation costs (F65) |
| increased intermediation costs (F65) | depressed aggregate demand (E00) |
| depressed aggregate demand (E00) | decline in aggregate output (E23) |
| bank failures (G21) | declines in output (E23) |
| financial crises (G01) | contraction in credit availability (E51) |
| contraction in credit availability (E51) | decline in aggregate output (E23) |
| banking crises (G01) | self-reinforcing cycle of reduced credit availability (E44) |