Financial collapse and active monetary policy
Subtitle: a lesson from the Great Depression
By: Russell Cooper and Dean Corbae.
Contributors: Corbae, Dean.
Series: Federal Reserve Bank of Minneapolis, Research Department staff report ;; 289; Staff report (Federal Reserve Bank of Minneapolis. Research Dept. : Online) ;; 289.
Publisher: Federal Reserve Bank of Minneapolis
Published: 2001
Place of publication: [Minneapolis, Minn.]
Language: eng
Format: Electronic resource
Subjects: Depressions -- 1929.; Financial crises -- Econometric models.; Bank failures -- Econometric models.; Monetary policy -- Econometric models.
Description: "We analyze financial collapses, such as the one that occurred during the U.S. Great Depression, from the perspective of a monetary model with multiple equilibria.The multiplicity arises from the presence of a strategic complementarity due to increasing returns to scale in the intermediation process.Intermediaries provide the link between savers and firms who require working capital for production.Fluctuations in the intermediation process are driven by variations in the confidence agents place in the financial system.From a positive perspective, our model matches closely the qualitative changes in important financial and real variables (the currency/deposit ratio, ex-post real interest rates, the level of intermediated activity, deflation, employment and production) over the Great Depression period, an experience often attributed to financial collapse.Further, we show how adding liquidity to the banking system through increases in the money supply is sufficient to overcome strategic uncertainty and thus avoid financial collapse"--Federal Reserve Bank of Minneapolis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/15/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.