1930s Bank Failures and Output: DYTVSC?

Jeffrey Miron and Natalia Rigol write,

assume it takes at least a month for bank failures to disrupt credit intermediation and thereby lower output. Under this assumption, any contemporaneous relation between output and failures is assumed to represent the impact of output on failures. We can then determine the effects of failures on output by excluding contemporaneous failures from the regressions. At a minimum, it seems reasonable to consider this specification.

Table 3 presents the results. In these regressions, bank failures have no predictive power for
output; indeed, the coefficients on bank failures imply that failures predict increases in output. Thus, if the
identifying assumption implicit in Table 3 is correct, these data and this specification provide no evidence
(indeed, contradict) the view that bank failures cause output declines.

DYTVSC means “Did you two visit the same country?” The person with the opposite point of view is Ben Bernanke.

Scott Sumner has more.

2 thoughts on “1930s Bank Failures and Output: DYTVSC?

  1. It could be fear of a -100% return might spur spending,converting wealth into income, along the lines of broken windows.

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