Seasonal Accommodation and the Financial Crises of the Great Depression: Did the Fed " Furnish and Elastic Currency?"

EGINNING WITH THE stock market crash in October 1929, the United States suffered a series of financial crises that mark the Great Depression. In each crisis, the number of bank failures and the declines in bank reserves, the money stock and economic activity were greater than in the preceding episodes. Many researchers investigating the causes of financial crises during the Great Depression have blamed the Federal Reserve, for either pursuing policies that led to crises or for failing to respond to them appropriately.’ This article investigates a recent claim by Miron (1986) that the reappearance of financial crises in 1929 was caused by a reduction in the Fed’s accommodation of seasonal currency and credit demands! The following three types of evidence are examined: the Fed’s procedures for supplying currency and bank reserves across seasons, the stability of the seasonal behavior of the Fed’s policy tools and the seasonal behavior of market interest rates. The Fed’s accommodation of seasonal demands was passive, suggesting that a deliberate change in seasonal policy