Working Paper: NBER ID: w9176
Authors: Kerry A. Odell; Marc D. Weidenmier
Abstract: Economists have long studied the relationship between the real and monetary sectors. We examine the macroeconomic effects of the 1906 San Francisco earthquake, a shock that immediately reduced United States. GNP by 1.5-1.8 percentage points. The quake's impact manifested itself in gold flows, as British insurance companies paid their San Francisco claims out of home funds in the fall of 1906. The capital outflow prompted the Bank of England to raise interest rates and discriminate against American finance bills. British bank policy pushed the US into recession and set the stage for the 1907 financial crisis. The 1907 panic led to the formation of the National Monetary Commission whose proposals recommended the creation of the Federal Reserve. In this study, we identify the San Francisco earthquake as the shock that triggered the chain of events that culminated in the panic of 1907.
Keywords: No keywords provided
JEL Codes: E32; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| San Francisco earthquake (N91) | Reduction in U.S. GNP (F69) |
| Reduction in U.S. GNP (F69) | Capital outflows (F32) |
| Capital outflows (F32) | Increased interest rates (E43) |
| Increased interest rates (E43) | Adverse effects on American financial markets (F65) |
| Adverse effects on American financial markets (F65) | Recession (E32) |
| Recession (E32) | Panic of 1907 (N22) |