The Real-Balance Effect in the Great Depression

Publisher Website
Google Scholar
Abstract
The initiating forces and contributing factors in the contraction of economic activity during the Great Depression have received a good deal of attention from students of economic history. The occurrence of concomitant falls in the price level and income level during the 1929–1934 depression period has often been cited as evidence of the real-balance effect's lack of empirical significance. In light of the recent developments in monetary theory regarding the contribution of demand deposit creation to net wealth, some reappraisal of the role of monetary wealth as a stabilizing influence in the depression period seems in order. The purpose of this article is to examine the endogenous determinants of the deposit ratios during a severe economic downturn and their relation to cyclical changes in the price level by which changes in business activity affect the stock of demand deposits, bank reserves, and thus the stock of bonds held by banks.

This publication has 4 references indexed in Scilit: