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Tom Nicholas - One of the best experts on this subject based on the ideXlab platform.
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did bank distress stifle innovation during the Great Depression
2014Co-Authors: Ramana Nanda, Tom NicholasAbstract:We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.
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did bank distress stifle innovation during the Great Depression
2014Co-Authors: Ramana Nanda, Tom NicholasAbstract:We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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real estate prices during the roaring twenties and the Great Depression
2013Co-Authors: Tom Nicholas, Anna ScherbinaAbstract:∗∗∗ Using new data on market-based transactions we construct real estate price indexes for Manhattan between 1920 and 1939. During the 1920s prices reached their highest level in the third quarter of 1929 before falling by 67% at the end of 1932 and hovering around that value for most of the Great Depression. The value of high-end properties strongly co-moved with the stock market between 1929 and 1932. A typical property bought in 1920 would have retained only 56% of its initial value in nominal terms two decades later. An investment in the stock market index (including dividends) would have outperformed an investment in a typical property (including net rental income) by a factor of 5.2 over our time period. It is often assumed that the Great Depression was associated with both stock market and real estate shocks (e.g., Shiller 2006, Piazzesi, Schneider and Tuzel 2007), especially in light of the recent sub-prime financial crisis where parallels with the past are frequently drawn (Reinhart and Rogoff 2009). Yet empirical evidence on movements in real estate prices is limited for this time period. We construct the first high-frequency real estate quarterly index using transaction prices for Manhattan, a major market in the United States. We use the new data to examine stock market and real estate cycles during one of the most significant crises in U.S. economic and financial history. We show that the real estate market suffered a sudden and severe downturn in 1929, from which it still had not recovered in 1939. Although Manhattan represents a small geographic area, in 1930 it contained approximately 4% of all United States real estate wealth despite having 1.5% of the population. 1 Moreover, Long Jr. (1936) writes that between 1919 and 1933, the total value of building plans for Manhattan was “only slightly less than 10% of the total
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real estate prices during the roaring twenties and the Great Depression
2011Co-Authors: Tom Nicholas, Anna ScherbinaAbstract:Using new data on market-based transactions we construct real estate price indexes for Manhattan between 1920 and 1939. During the 1920s prices reached their highest level in the third quarter of 1929 before falling by 67 percent at the end of 1932 and hovering around that value for most of the Great Depression. The value of high-end properties strongly co-moved with the stock market between 1929 and 1932. A typical property bought in 1920 would have retained only 56 percent of its initial value in nominal terms two decades later. An investment in the stock market index (including dividends) would have outperformed an investment in a typical property (including net rental income), by a factor of 5.2 over our time period.
Barry Eichengreen - One of the best experts on this subject based on the ideXlab platform.
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hall of mirrors the Great Depression the Great recession and the uses and misuses of history
2015Co-Authors: Barry EichengreenAbstract:The two Great financial crises of the past century are the Great Depression of the 1930s and the Great Recession, which began in 2008. Both occurred against the backdrop of sharp credit booms, dubious banking practices, and a fragile and unstable global financial system. When markets went into cardiac arrest in 2008, policymakers invoked the lessons of the Great Depression in attempting to avert the worst. While their response prevented a financial collapse and catastrophic Depression like that of the 1930s, unemployment in the U.S. and Europe still rose to excruciating high levels. Pain and suffering were widespread. The question, given this, is why didn't policymakers do better? Hall of Mirrors, Barry Eichengreen's monumental twinned history of the two crises, provides the farthest-reaching answer to this question to date. Alternating back and forth between the two crises and between North America and Europe, Eichengreen shows how fear of another Depression following the collapse of Lehman Brothers shaped policy responses on both continents, with both positive and negative results. Since bank failures were a prominent feature of the Great Depression, policymakers moved quickly to strengthen troubled banks. But because derivatives markets were not important in the 1930s, they missed problems in the so-called shadow banking system. Having done too little to support spending in the 1930s, governments also ramped up public spending this time around. But the response was indiscriminate and quickly came back to haunt overly indebted governments, particularly in Southern Europe. Moreover, because politicians overpromised, and because their measures failed to stave off a major recession, a backlash quickly developed against activist governments and central banks. Policymakers then prematurely succumbed to the temptation to return to normal policies before normal conditions had returned. The result has been a grindingly slow recovery in the United States and endless recession in Europe. Hall of Mirrors is both a major work of economic history and an essential exploration of how we avoided making only some of the same mistakes twice. It shows not just how the "lessons" of Great Depression history continue to shape society's response to contemporary economic problems, but also how the experience of the Great Recession will permanently change how we think about the Great Depression.
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right wing political extremism in the Great Depression
2012Co-Authors: Alan De Bromhead, Barry Eichengreen, Kevin H OrourkeAbstract:We examine the impact of the Great Depression on the share of votes for right-wing anti-system parties in elections in the 1920s and 1930s. We confirm the existence of a link between political extremism and economic hard times as captured by growth or contraction of the economy. What mattered was not simply growth at the time of the election but cumulative growth performance. But the effect of the Depression on support for right-wing anti-system parties was not equally powerful under all economic, political and social circumstances. It was Greatest in countries with relatively short histories of democracy, with existing extremist parties, and with electoral systems that created low hurdles to parliamentary representation. Above all, it was Greatest where depressed economic conditions were allowed to persist.
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the slide to protectionism in the Great Depression who succumbed and why
2010Co-Authors: Barry Eichengreen, Douglas A IrwinAbstract:The Great Depression was marked by a severe outbreak of protectionist trade policies. But contrary to the presumption that all countries scrambled to raise trade barriers, there was substantial cross-country variation in the movement to protectionism. Specifically, countries that remained on the gold standard resorted to tariffs, import quotas, and exchange controls to a Greater extent than countries that went off gold. Just as the gold standard constraint on monetary policy is critical to understanding macroeconomic developments in this period, exchange rate policies help explain changes in trade policy.
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the slide to protectionism in the Great Depression who succumbed and why
2009Co-Authors: Barry Eichengreen, Douglas A IrwinAbstract:The Great Depression was marked by a severe outbreak of protectionist trade policies. But contrary to the presumption that all countries scrambled to raise trade barriers, there was substantial cross-country variation in the movement to protectionism. Specifically, countries that remained on the gold standard resorted to tariffs, import quotas, and exchange controls to a Greater extent than countries that went off gold. Gold standard countries chose to maintain their fixed exchange rate and reduce spending on imports rather than allow their currency to depreciate. Trade protection in the 1930s was less an instance of special interest politics than second-best macroeconomic policy when monetary and fiscal policies were constrained.
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the Great Depression as a credit boom gone wrong
2003Co-Authors: Kris James Mitchener, Barry EichengreenAbstract:The experience of the 1990s renewed economists’ interest in the role of credit in macroeconomic fluctuations. The locus classicus of the credit-boom view of economic cycles is the expansion of the 1920s and the Great Depression. In this paper we ask how well quantitative measures of the credit boom phenomenon can explain the uneven expansion of the 1920s and the slump of the 1930s. We complement this macroeconomic analysis with three sectoral studies that shed further light on the explanatory power of the credit boom interpretation: the property market, consumer durables industries, and high-tech sectors. We conclude that the credit boom view provides a useful perspective on both the boom of the 1920s and the subsequent slump. In particular, it directs attention to the role played by the structure of the financial sector and the interaction of finance and innovation. The credit boom and its ultimate impact were especially pronounced where the organization and history of the financial sector led intermediaries to compete aggressively in providing credit. And the impact on financial markets and the economy was particularly evident in countries that saw the development of new network technologies with commercial potential that in practice took considerable time to be realized. In addition, the structure and management of the monetary regime mattered importantly. The procyclical character of the foreign exchange component of global international reserves and the failure of domestic monetary authorities to use stable policy rules to guide the more discretionary approach to monetary management that replaced the more rigid rules-based gold standard of the earlier era are key for explaining the developments in credit markets that helped to set the stage for the Great Depression.
Dimitris Papanikolaou - One of the best experts on this subject based on the ideXlab platform.
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financial frictions and employment during the Great Depression
2019Co-Authors: Carola Frydman, Dimitris Papanikolaou, Efraim BenmelechAbstract:We provide new evidence that a disruption in credit supply played a quantitatively significant role in the unprecedented contraction of employment during the Great Depression. To analyze the role of financing frictions in firms' employment decisions, we use a novel, hand-collected dataset of large industrial firms. Our identification strategy exploits preexisting variation in the need to raise external funds at a time when public bond markets essentially froze. Local bank failures inhibited firms' ability to substitute public debt for private debt, which exacerbated financial constraints. We estimate a large and negative causal effect of financing frictions on firm employment. Interpreting the estimated elasticities through the lens of a simple structural model, we find that the lack of access to credit may have accounted for 10% to 33% of the aggregate decline in employment of large firms between 1928 and 1933.
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financial frictions and employment during the Great Depression
2019Co-Authors: Carola Frydman, Dimitris Papanikolaou, Efraim BenmelechAbstract:Abstract We provide new evidence that a disruption in credit supply played a quantitatively significant role in the unprecedented contraction of employment during the Great Depression using a novel, hand-collected dataset of large industrial firms. Our identification strategy exploits preexisting variation in the need to raise external funds at a time when public bond markets essentially froze. Local bank failures inhibited firms’ ability to substitute public debt for private debt, which exacerbated financial constraints. We estimate a large and negative causal effect of financing frictions on firm employment. We find that the lack of access to credit likely accounted for a substantial fraction of the aggregate decline in employment of large firms between 1928 and 1933.
Efraim Benmelech - One of the best experts on this subject based on the ideXlab platform.
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financial frictions and employment during the Great Depression
2019Co-Authors: Carola Frydman, Dimitris Papanikolaou, Efraim BenmelechAbstract:We provide new evidence that a disruption in credit supply played a quantitatively significant role in the unprecedented contraction of employment during the Great Depression. To analyze the role of financing frictions in firms' employment decisions, we use a novel, hand-collected dataset of large industrial firms. Our identification strategy exploits preexisting variation in the need to raise external funds at a time when public bond markets essentially froze. Local bank failures inhibited firms' ability to substitute public debt for private debt, which exacerbated financial constraints. We estimate a large and negative causal effect of financing frictions on firm employment. Interpreting the estimated elasticities through the lens of a simple structural model, we find that the lack of access to credit may have accounted for 10% to 33% of the aggregate decline in employment of large firms between 1928 and 1933.
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financial frictions and employment during the Great Depression
2019Co-Authors: Carola Frydman, Dimitris Papanikolaou, Efraim BenmelechAbstract:Abstract We provide new evidence that a disruption in credit supply played a quantitatively significant role in the unprecedented contraction of employment during the Great Depression using a novel, hand-collected dataset of large industrial firms. Our identification strategy exploits preexisting variation in the need to raise external funds at a time when public bond markets essentially froze. Local bank failures inhibited firms’ ability to substitute public debt for private debt, which exacerbated financial constraints. We estimate a large and negative causal effect of financing frictions on firm employment. We find that the lack of access to credit likely accounted for a substantial fraction of the aggregate decline in employment of large firms between 1928 and 1933.
Ramana Nanda - One of the best experts on this subject based on the ideXlab platform.
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did bank distress stifle innovation during the Great Depression
2014Co-Authors: Ramana Nanda, Tom NicholasAbstract:We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.
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did bank distress stifle innovation during the Great Depression
2014Co-Authors: Ramana Nanda, Tom NicholasAbstract:We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
