NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Jon S. Cohen

Department of Economics
University of Toronto
Max Gluskin House
150 St. George Street, 322
Toronto, Ontario M5S 3G7
Canada
Tel: 416-978-4181
Fax: 416-978-6713

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Institutional Affiliation: University of Toronto

NBER Working Papers and Publications

December 2016Relationship Lending and the Great Depression
with Kinda Cheryl Hachem, Gary Richardson: w22891
The collapse of long-term lending relationships amplified the Great Depression and perturbed recovery. We demonstrate this by developing a new measure of lending relationships that can be calculated from widely available data at any level of aggregation. Our approach exploits differences in the responsiveness of loan rates to bank funding costs and is supported by historical evidence and theoretical arguments. The new measure reveals that bank suspensions’ marginal impact on economic activity in the early 1930s was higher in more relationship-intensive areas. Furthermore, the rebuilding of destroyed relationships helps explain regional variation in economic performance during the 1937-38 recession.
 
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