Working Paper: NBER ID: w18616
Authors: Christopher Hanes; Paul W. Rhode
Abstract: Most American financial crises of the postbellum gold-standard era were caused by fluctuations in the cotton harvest due to exogenous factors such as weather. The transmission channel ran through export revenues and financial markets under the pre-1914 monetary regime. A poor cotton harvest depressed export revenues and reduced international demand for American assets, which depressed American stock prices, drained deposits from money-center banks and precipitated a business-cycle downturn - conditions that bred financial crises. The crises caused by cotton harvests could have been prevented by an American central bank, even under gold-standard constraints.
Keywords: financial crises; gold standard; cotton harvest; export revenues
JEL Codes: E32; E44; N11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central bank could have mitigated effects of harvest fluctuations (E52) | Prevented financial crises (G01) |
| Poor cotton harvests (N52) | Decreased export revenues (F69) |
| Decreased export revenues (F69) | Lower international demand for American assets (F49) |
| Lower international demand for American assets (F49) | Lower stock prices (G19) |
| Lower stock prices (G19) | Withdrawal of deposits from money-center banks (G21) |
| Withdrawal of deposits from money-center banks (G21) | Downturn in the business cycle (E32) |
| Downturn in the business cycle (E32) | Financial crises (G01) |
| Poor cotton harvests (N52) | Financial crises (G01) |
| Wheat harvests did not exert similar financial effects (N54) | Financial crises (G01) |