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

Published online by Cambridge University Press:  27 June 2006

THOMAS F. CARGILL  and
THOMAS MAYER
THOMAS F. CARGILL
Affiliation:
Professor; Department of Economics; University of Nevada, Reno; Reno, NV 89557. E-mail: [email protected].
THOMAS MAYER
Affiliation:
Professor Emeritus; Department of Economics; One Shields Avenue; University of California, Davis; Davis, CA 95616. E-mail: [email protected].
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Abstract

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.

Type
ARTICLES
Information
The Journal of Economic History , Volume 66 , Issue 2 , June 2006 , pp. 417 - 432
Copyright
© 2006 The Economic History Association

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