NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Contagion of Fear

Kris James Mitchener, Gary Richardson

NBER Working Paper No. 26859
Issued in March 2020
NBER Program(s):Development of the American Economy, Monetary Economics

The Great Depression is infamous for banking panics, which were a symptomatic of a phenomenon that scholars have labeled a contagion of fear. Using geocoded, microdata on bank distress, we develop metrics that illuminate the incidence of these events and how banks that remained in operation after panics responded. We show that between 1929-32 banking panics reduced lending by 13%, relative to its 1929 value, and the money multiplier and money supply by 36%. The banking panics, in other words, caused about 41% of the decline in bank lending and about nine-tenths of the decline in the money multiplier during the Great Depression.

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Document Object Identifier (DOI): 10.3386/w26859

 
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