Contagion During the Initial Banking Panic of the Great Depression / Erik Heitfield, Gary Richardson, Shirley Wang.

Format:

Book

Author/Creator:

Heitfield, Erik.

Contributor:

National Bureau of Economic Research.

Richardson, Gary.

Wang, Shirley.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23629.

NBER working paper series no. w23629

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

The initial banking crisis of the Great Depression has been the subject of debate. Some scholars believe a contagious panic spread among financial institutions. Others argue that suspensions surged because fundamentals, such as losses on loans, drove banks out of business. This paper nests those hypotheses in a single econometric framework, a Bayesian hazard rate model with spatial and network effects. New data on correspondent networks and bank locations enables us to determine which hypothesis fits the data best. The best fitting models are ones incorporating network and geographic effects. The results are consistent with the description of events by depression-era bankers, regulators, and newspapers. Contagion - both interbank and spatial - propelled a panic which healthy banks survived but which forced illiquid and insolvent banks out of operations.

Notes:

Print version record

July 2017.