@techreport{NBERw5130,
 title = "Financial Intermediation and The Great Depression: A Multiple Equilibrium Interpretation",
 author = "Russell Cooper and Joao Ejarque",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "5130",
 year = "1995",
 month = "May",
 URL = "http://www.nber.org/papers/w5130",
 abstract = {This paper explores the behavior of the U.S. economy during the interwar period from the perspective of a model in which the existence of non-convexities in the intermediation process gives rise to a multiplicity of equilibria.  The resulting indeterminancy is resolved through a sunspot process which leads to endogenous fluctuations in aggregate economic activity.  From this perspective, the Depression period is represented as a regime shift associated with a financial crisis.  Our model economy has properties which are broadly consistent with observations over the interwar period.  Contrary to observation, the model predicts a negative correlation of consumption and investment as well as a highly volatile capital stock.  Our model of financial crisis reproduces many aspects of the Great Depression though the model predicts a much sharper fall in investment than is observed in the data.  Modifications to our model (adding durable goods and a capacity utilization choice) do not overcome these deficiencies.},
}