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The author's paper provides empirical support for the importance of financial distress in the propagation of the Great Depression. Even those in agreement are not unanimous in the mechanisms they propose. Friedman and Schwartz (1963) argue that bank failures caused money supply reductions which in turn depressed economic activity, while Bernanke (1983) suggests that bank failures raised the cost of credit intermediation. The empirical support for both interpretations has nevertheless been scant. Cole and Ohanian (1999, 2000) in turn conclude that bank failures could not have aggravated the Depression. The author's paper examines the mechanism by which financial distress affected the "Real economy".
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