Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96651
Authors: 
Chabot, Benjamin
Moul, Charles C.
Year of Publication: 
2013
Series/Report no.: 
Working Paper, Federal Reserve Bank of Chicago 2013-03
Abstract: 
Governments often attempt to increase the confidence of financial market participants by making implicit or explicit guarantees of uncertain credibility. Confidence in these guarantees presumably alters the size of the financial sector, but observing the long-run consequences of failed guarantees is difficult in the modern era. We look to America's free-banking era and compare the consequences of a broken guarantee during the Indiana-centered Panic of 1854 to the Panic of 1857 in which guarantees were honored. Our estimates of a model of endogenous market structure indicate substantial negative long-run consequences to financial depth when panics cast doubt upon a government's ability to honor its guarantees.
Subjects: 
banking panics
government guarantees
leverage cycles
endogenous market structure
economic history
JEL: 
D53
G21
L11
L13
N21
Document Type: 
Working Paper

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