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Working Paper
Trade, Relative Prices, and the Canadian Great Depression
Canadian GNP per capita fell by roughly a third between 1928 and 1933. Although the decline and the slow recovery of GNP resemble the American Great Depression, trade was more important in Canada, as exports and imports each accounted for roughly a quarter of Canadian GNP in 1928. The fall in the trade share of GNP of roughly 30 percent between 1928 and 1933 was accompanied by a decline of over 20 percent in the relative prices of exports and imports relative to nontraded goods. We develop a three-sector small open economy model, where wages in the nontraded and import competing sectors ...
Working Paper
Sovereign Default in the US
In the absence of a judicial mechanism to reduce the debt burden of a sovereign member of our Union, the resolution process can be quick but perhaps too indifferent to the health, safety, and welfare of the affected residents. In this paper, I use evidence from the Arkansas state archives to provide a description of the events surrounding the default of the state in 1933. I examine the evolution of the negotiations, the outcomes, and the role of fiscal policy.
Working Paper
Export-Led Decay: The Trade Channel in the Gold Standard Era
Flexible exchange rates can facilitate price adjustments that buffer macroeconomic shocks. We test this hypothesis using adjustments to the gold standard during the Great Depression. Using prices at the goods level, we estimate exchange rate pass-through. Using novel monthly data on city-level economic activity, combined with employment composition and sectoral export data, we show that American exporting cities were significantly affected by changes in bilateral exchange rates. With those results we calibrate a general equilibrium model to obtain aggregate effects from cross-sectional ...
Working Paper
Export-Led Decay: The Trade Channel in the Gold Standard Era
Flexible exchange rates can facilitate price adjustments that buffer macroeconomic shocks. We test this hypothesis using adjustments to the gold standard during the Great Depression. Using prices at the goods level, we estimate exchange rate pass-through and find gains in competitiveness after a depreciation. Using novel monthly data on city-level economic activity, combined with employment composition and sectoral export data, we show that American exporting cities were significantly affected by changes in bilateral exchange rates. They were negatively impacted when the UK abandoned the gold ...
Journal Article
Ben Bernanke: Solving a Crisis, Changing the Fed
Ben Bernanke’s contributions to economic thinking have been vast, from his extensive study of the Great Depression to groundbreaking research on the interplay of finance and the macroeconomy and the usefulness of unconventional monetary policy tools. His research helped guide his tenure as Federal Reserve Chair and his role in putting the U.S. economy on a path to the longest expansion in its history. Through that role, he also built a better and more transparent Fed for the future. The following remarks are adapted from a presentation by the Federal Reserve Bank of San Francisco president, ...
Working Paper
A Historical Welfare Analysis of Social Security: Whom Did the Program Benefit?
A well-established result in the literature is that Social Security tends to reduce steady state welfare in a standard life cycle model. However, less is known about the historical effects of the program on agents who were alive when the program was adopted. In a computational life cycle model that simulates the Great Depression and the enactment of Social Security, this paper quantifies the welfare effects of the program's enactment on the cohorts of agents who experienced it. In contrast to the standard steady state results, we find that the adoption of the original Social Security tended ...
Working Paper
Liquidity from Two Lending Facilities
During financial crises, the lender of last resort (LOLR) uses lending facilities to inject critical funding into the banking sector. The facilities need to be designed in such a way that banks are not reluctant to seek assistance due to stigma and that banks with liquidity concerns are attracted rather than those prone to risk-taking and moral hazard incentives. We use an unexpected disclosure that introduced stigma at one of two similar LOLRs during the Great Depression to evaluate whether banks used LOLR assistance to improve their liquidity needs using a novel trivariate model with ...
Working Paper
Inflation Expectations and Recovery from the Depression in 1933: Evidence from the Narrative Record
This paper uses the historical narrative record to determine whether inflation expectations shifted during the second quarter of 1933, precisely as the recovery from the Great Depression took hold. First, by examining the historical news record and the forecasts of contemporary business analysts, we show that inflation expectations increased dramatically. Second, using an event-studies approach, we identify the impact on financial markets of the key events that shifted inflation expectations. Third, we gather new evidence--both quantitative and narrative--that indicates that the shift in ...
Working Paper
Managing Stigma during a Financial Crisis
How should regulators design effective emergency lending facilities to mitigate stigma during a financial crisis? I explore this question using data from an unexpected disclosure of partial lists of banks that secretly borrowed from the lender of last resort during the Great Depression. I find evidence of stigma in that depositors withdrew more deposits from banks included on the lists in comparison with banks left off the lists. However, stigma dissipated for banks that were revealed earlier after subsequent banks were revealed. Overall, the results suggest that an emergency lending facility ...
Working Paper
Financial Failure and Depositor Quality: Evidence from Building and Loan Associations in California
Flightiness, or depositor sensitivity to liquidity needs, can be an important determinant of financial distress. I leverage institutional differences that attract depositors with varying flightiness across building and loan associations in California during the Great Depression. A new type of plan, the Dayton plan, involved less restrictive savings plans and lower withdrawal penalties. Dayton plans in California were more likely to close during the Great Depression. Archival evidence on lending rates and returns supports the flightiness mechanism.