Monetary Policy and the Onset of the Great Depression

Monetary Policy and the Onset of the Great Depression

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Monetary Policy and the Onset of the Great Depression challenges Milton Friedman and Anna Schwartz's now-consensus view that the high tide of the Federal Reserve System in the 1920s was due to the leadership skills of Benjamin Strong, head of the Federal Reserve Bank of New York. In this new work, Toma develops a self-regulated model of the Federal Reserve, which stands in contrast to a conventional discretionary model. Given the easy redemption of dollars for gold and the competition among Reserve banks, the self-regulated model implies that the early Fed could control neither the money supply nor the price level. Exploiting an untapped data set, later chapters test the thesis of self-regulation by focusing on the monetary decisions of individual Reserve banks. The micro-based evidence indicates that qReserve banks really did competeq a€“ and that Benjamin Strong as decisive leader during the 1920s is a myth. This finding, with its emphasis on monetary policy in the years leading up to the Great Depression, will be of interest to scholars, students, and sophisticated lay readers with an interest in macroeconomic and monetary economic policy issues, specifically to those with an interest in economic history.The build-up, however, did not fully compensate for the loss of confidence in Reserve banks. ... Banks scrambled to acquire cash, causing bond prices to fall, which triggered margin calls resulting in a massive sell-off on the stock marketa€”a stock market crash. While the crash did not necessarily represent the onset of the Great Depression, I do argue that it, along with liquidity events in spring and summeranbsp;...

Title:Monetary Policy and the Onset of the Great Depression
Author: Mark Toma
Publisher:Palgrave Macmillan - 2013-12-18

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