Working Paper: NBER ID: w26695
Authors: Pooyan Amirahmadi; Gustavo S. Cortes; Marc D. Weidenmier
Abstract: We compile a new monthly database for each Federal Reserve district between 1923-33 to analyze the national and regional nature of the monetary transmission mechanism around the Great Depression. We employ sign-identified structural VARs and narrative sign restrictions informed by uncontroversial theory and the historical record. Our findings demonstrate that there was significant heterogeneity in regional monetary policy as well as its dynamic effects on real economic activity. Prices in the 12 Fed districts were generally more responsive to contractionary regional monetary policy than national monetary policy shocks. The district reserve banks played a key role in the great contraction.
Keywords: Monetary Policy; Great Depression; Regional Economic Activity; Federal Reserve
JEL Codes: E52; E58; N1; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Contractionary regional monetary policy shocks (E49) | Negative effect on real economic activity (E44) |
| Contractionary regional monetary policy shocks (E49) | Negative effect on prices (E31) |
| Contractionary regional monetary policy shocks (E49) | Retail sales (L81) |
| Contractionary monetary policy shock (E49) | Forecast error variance of retail sales (C53) |
| New York Fed's aggressive monetary policy response (E52) | Smaller impact on retail sales (F61) |
| New York Fed's aggressive monetary policy response (E52) | Smaller impact on building permits (L74) |