NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Shirley Wang

Cornell University
Graduate School of Business

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Cornell University

NBER Working Papers and Publications

July 2017Contagion During the Initial Banking Panic of the Great Depression
with Erik Heitfield, Gary Richardson: w23629
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...
 
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