I thank Danielle DiMartino, Steen Ejerskov, Gustavo Suarez, and two anonymous referees for suggestions; David Luttrell and Jessica Renier for research assistance; and seminar participants at Oxford University, Johns Hopkins University, the European Central Bank, The Bank for International Settlements, the 2009 Bank of Canada—Simon Fraser University Conference on Financial Market Stability, the 2008 North American Economics and Finance Association, the 2006 Western Economic Association Meeting, the 2007 Swiss Society for Financial Market Research Meeting, and the 2007 Financial Management Association Meeting for comments and suggestions on an earlier versions. The views expressed are those of the author's and are not necessarily those of the Federal Reserve Bank of Dallas or the Federal Reserve System.
The Money Market Meltdown of the Great Depression
Version of Record online: 17 MAR 2013
© 2013 The Ohio State University
Journal of Money, Credit and Banking
Volume 45, Issue 2-3, pages 493–504, March-April 2013
How to Cite
DUCA, J. V. (2013), The Money Market Meltdown of the Great Depression. Journal of Money, Credit and Banking, 45: 493–504. doi: 10.1111/jmcb.12012
- Issue online: 17 MAR 2013
- Version of Record online: 17 MAR 2013
- Received April 8, 2010; and accepted in revised form September 20, 2011.
- Great Depression;
- commercial paper;
- financial frictions;
- credit rationing
Consistent with theories of financial frictions, this study finds that higher corporate risk premia and flight-to-quality events contributed to the increased use of a collateralized form of business lending (bankers acceptances) in real levels and relative to that of noncollateralized commercial paper (which plunged) during the Great Depression. These short-lived instruments are more timely measures of credit availability than are bank/business failures and bank loan outstandings. These shifts in the composition of external finance were large, supporting the view that financial frictions rose and credit availability fell during the Great Depression.