ECON 2200 Chapter Notes - Chapter 23: Monetary Policy, Monetarism, Bank Reserves
9 Feb 2017
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The great depression: part 2 (chap 23, continued: how do economic historians explain the great depression, the monetarist interpretation: friedman & schwartz, a monetary history of the us (1963) This interpretation focuses on events between 1929 and 1933. Primary cause: decline in m (table 23. 2: bank failures/panics (cid:314) surviving banks increased reserve holdings. In early 1930s, total bank deposits (result of runs and fewer banks in general) and reserve holdings of surviving banks . As output fell, unemployment went up, income of households and firms decreases, and loans decrease (never ending cycle) Note column 3, table 23. 2: rising m-to-gdp ratio monetarists view this as evidence of hoarding. Federal reserve"s role: monetarists claim that the fed"s failure to exercise basic central bank functions increased the depth and duration of the recession that became the great. Monetary policy tended to be procyclical rather than countercyclical, especially in 1929-1932. Exercised contractionary monetary policy instead of expansionary.
