MEHR Seminar: Samad Sarferaz, Swiss Federal Institute of Technology, Zurich, 'Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931'

Abstract: This paper examines currency and banking in the German financial crisis of 1931 for both Germany and the U.S. We specify a structural dynamic factor model to identify financial and monetary factors separately for each economy. We find a major role for financial distress in propagating the crisis. We also find strong evidence of crisis transmission from Germany to the U.S. via the banking channel. Banking distress in both economies was apparently not endogenous to monetary policy. Results confirm Bernanke's (1983) conjecture that an independent, non-monetary financial channel of crisis propagation was operative in the Great Depression.