e 0249 D W 199 Sample 121 1241 976 213 399 197 003 024 P Pe t 3 799E 04 DBANKS

E 0249 d w 199 sample 121 1241 976 213 399 197 003

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s.e. = .0249 D. W. = 1.99 Sample: 1/21-12/41 (9.76) (-2.13) (3.99) (1.97) (-0.03) + .024 (P-Pe) t - 3-.799E- 04 DBANKS,-.337E-04 DBANKS, _ (0.22) (-4.03) (-1.66) -.202 E-03 DFAILS,- .242 E- 03 DFAILSt_ (- 1.52) (- 1.83) s.e. = .0246 D. W. = 1.98 Sample: 1/21-2/41 Notes: Y,= rate of growth of industrial production (Federal Reserve Bulletin), relative to exponential tre (M - Me),= rate of growth of Ml, nominal and seasonally adjusted (Friedman and Schwartz, Table predicted rate of growth. (P - Pe),= rate of growth of wholesale price index (Federal Reserve Bulletin), less predicted rate of grow DBANKS,= first difference of deposits of failing banks (deflated by wholesale price index). DFAILSt= first difference of liabilities of failing businesses (deflated by wholesale price index). Data are monthly; t-statistics are shown in parentheses. the economic reason that costs of adjusting production can be presumed to create a serial dependence in output. Like Evans, I was not able to find effects of money (or prices) lagged more than three months. While these regression results exhibit sta- tistical significance and the expected signs for coefficients, they are disappointing in the following sense: When equations (1) and (2) are used to perform dynamic simulations of the path of output between mid-1930 and the bank holiday of March 1933, they capture no more than half of the total decline of output during the period. This is the basis of the comment in the introduction that the de- clines in money seem "quantitatively insuffi- cient" to explain what happened to output in 1930-33. This content downloaded from on Wed, 17 May 2017 02:12:24 UTC All use subject to
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270 THE AMERICAN ECONOMIC REVIEW JUNE 1983 Given the basic regressions (1) and (2), the next step was to examine the effects of in- cluding proxies for the nonmonetary finan- cial impact as explanators of output. Based on the earlier analysis of this paper, the most obvious such proxies are the deposits of fail- ing banks and the liabilities of failing busi- nesses. A preliminary problem with the bank de- posits series that needs to be discussed is the value for March 1933, the month of the bank holiday. As can be seen in Table 1, the deposits of banks suspended in March 1933 is seven times that of the next worse month. The question arises if any adjustment should be made to that figure before running the regressions. We believe that it would be a mistake to eliminate totally the bank holiday episode from the sample. According to contemporary accounts, rather than being an orderly and planned-in-advance policy, the imposition of the holiday was a forced response to the most panicky and chaotic financial condi- tions of the period. The deposits of sus- pended banks figure for March, as large as it is, reflects not all closed banks but only those not licensed to reopen by June 30, 1933. Of these banks, most were liquidated or placed in receivership; less than 25 per- cent had been licensed to reopen as of De- cember 31, 1936.28 Qualitatively, then, the March 1933 episode resembled the earlier crises; it would be throwing away informa- tion not to include in some way the effects of this crisis and of its resolution on the econ- omy.
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