Excess reserves during the 1930s: Empirical estimates of the costs of converting unintended cash inventory into income-producing assets

Lindley, James T.; Sowell, Clifford; Mounts, Wm. Stewart

doi:10.1007/bf02744518

Cited by 5 publications

(1 citation statement)

References 18 publications

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“…They argue that contrary to Friedman and Schwartz, increased reserve demand did not reflect growing risk aversion of banks in response to the banking panics of 1931-1933, but rather, loan losses that reduced capital. Mounts, Sowell and Saxena (2000) and Lindley, Sowell and Mounts (2001) argue that the accumulation of excess reserves reflected high inventoryadjustment costs, rather than increased demand associated with banking panics.…”

Section: Literature Reviewmentioning

confidence: 99%

Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach

Calomiris¹,

Mason²,

Wheelock³

2011

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In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy. Using microeconomic data to gauge the fundamental reserve demands of Fed member banks, we find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements.

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Section: Literature Reviewmentioning

confidence: 99%

Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach

Calomiris¹,

Mason²,

Wheelock³

2011

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The Effect of Changes in Reserve Requirements During the 1930s: The Evidence from Nonmember Banks

Cargill¹,

Mayer²

2006

J. Econ. Hist.

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Despite the widespread acceptance of Friedman and Schwartz's interpretation of the 1936/37 increase in member bank reserve requirements as the major cause of the 1937/38 recession there is surprisingly little straightforward evidence on this issue, perhaps because data limitations and structural instability preclude econometric modeling. We exploit a simple alternative, comparing member banks with nonmember banks not subject to changes in reserve requirements. The results support the hypothesis that the increase in reserve requirements reduced the availability of bank credit and contributed to the recession.

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Excess Reserves During the Great Contraction: Evidence from the Central Money Market of New York City, 1929 to 1932

Horn

2007

SSRN Journal

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Excess reserves during the 1930s: Empirical estimates of the costs of converting unintended cash inventory into income-producing assets

Cited by 5 publications

References 18 publications

Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach

Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach

The Effect of Changes in Reserve Requirements During the 1930s: The Evidence from Nonmember Banks

Excess Reserves During the Great Contraction: Evidence from the Central Money Market of New York City, 1929 to 1932

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