Moreover my analysis of the domestic finan cial system may be able to shed

Moreover my analysis of the domestic finan cial

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Moreover, my analysis of the domestic finan- cial system may be able to shed light on some of the international financial difficul- ties of the period. VII. Conclusion Did the financial collapse of the early 1930's have real effects on the macroecon- omy, other than through monetary channels? The evidence is at least not inconsistent with this proposition. However, a stronger reason for giving this view consideration is the one stated in the introduction: this theory has hope of achieving a reconciliation of the obvious suboptimality of this period with the postulate of reasonably rational, market-con- strained agents. The solution to this paradox lies in recognizing that economic institutions, rather than being a " veil," can affect costs of transactions and thus market opportunities and allocations. Institutions which evolve and perform well in normal times may become counterproductive during periods when ex- ogenous shocks or policy mistakes drive the economy off course. The malfunctioning of financial institutions during the early 1930's exemplifies this point. REFERENCES Abel, Andrew and Mishkin, Frederic, "An In- tegrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy," Working Paper 726, National Bureau of Economic Research, 1981. Barro, Robert, "Unanticipated Money, Out- put, and the Price Level in the United States," Journal of Political Economy, August 1978, 86, 549-80. Behrens, Carl, Commercial Bank Activities in Urban Mortgage Financing, New York: National Bureau of Economic Research, 1952. Bemanke, Ben, "Bankruptcy, Liquidity, and Recession," American Economic Review Proceedings, May 1981, 71, 155-59. Brown, E. Carey, "Fiscal Policy in the 'Thir- ties: A Reappraisal," American Economic Review, December 1956, 46, 857-79. Brunner, Karl, The Great Depression Revisited, Boston: Martinus Nijhoff, 1981. Cagan, Philip, Determinants and Effects of Changes in the Stock of Money, 1875-1960, New York: National Bureau of Economic Research, 1965. Chandler, Lester, America's Greatest Depres- sion, New York: Harper & Row, 1970. , American Monetary Policy, 1928- 1941, New York: Harper & Row, 1971. Clark, Evans, The Internal Debts of the United States, New York: Macmillan Co., 1933. Cone, Kenneth, "Regulation of Depository Financial Intermediaries," unpublished doctoral dissertation, Stanford University, 1982. Diamond, Douglas and Dybvig, Philip, "Bank Runs, Deposit Insurance, and Liquidity," mimeo., University of Chicago, 1981. Evans, Paul, "An Econometric Analysis of the Causes of the Great Depression in the U.S.," mimeo., Stanford University, 1981. Fabricant, Solomon, Profits, Losses, and Busi- ness Assets, 1929-1934, Bulletin 55, Na- tional Bureau of Economic Research, 1935. Fama, Eugene, "Banking in the Theory of Finance," Journal of Monetary Economics, January 1980, 6, 39-57. Fisher, Irving, "The Debt-Deflation Theory of Great Depressions," Econometrica, Oc- tober 1933, 1, 337-57.
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