Document Type
Article
Publication Date
8-29-2021
Abstract
We investigate the role of forward-looking financial factors in propagating the Great Depression. We find that a new hand-collected bank stock index is better at predicting the onset of the Great Depression than the aggregate stock market or failed bank deposits. The bank stock index explains almost one-third of the fluctuations in industrial production after five years. Analysis disaggregated at each Federal Reserve district shows that bank stocks capture forward-looking information about debt defaults and credit. Our results suggest that future studies of the credit channel during the Great Depression should incorporate bank stocks to better identify the impact of credit crunches on economic activity.
Recommended Citation
Cortes, G. S., Taylor, B., & Weidenmier, M. D. (2022). Financial factors and the propagation of the Great Depression. Journal of Financial Economics, 145(2B), 577-594. https://doi.org/10.1016/j.jfineco.2021.08.018
Peer Reviewed
1
Copyright
Elsevier
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Economics, volume 145, issue 2, part B, in 2022. https://doi.org/10.1016/j.jfineco.2021.08.018
The Creative Commons license below applies only to this version of the article.