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- Title
Asset Exchanges and the Transactions Demand for Money, 1919-29.
- Authors
Field, Alexander J.
- Abstract
This paper addresses a general theoretical question: the appropriate specification of the transactions demand for money, as well as a particular historical question: what triggered the Great Depression of 1929-1939? Theoretically, fluctuations in the volume and value of asset exchanges in secondary asset markets can influence the transactions demand for money independently of real output and interest rates, and ought to be integrated into the analysis of those forces perturbing the demand for money and shifting LM curves in the absence of monetary intervention. Empirically, the article demonstrates that, over the years 1919-29, monthly fluctuations in the volume and value of trading on the New York Stock Exchange did influence the transactions demand for money independently of fluctuations in real output and interest rates. Moreover, in the context of relatively slow post-1925 growth rates of monetary aggregates, the unprecedented increase in the volume and value of such trading from the beginning of 1925 to October 1929 had the effect of shifting the LM curve persistently to the left. The failure of U.S. monetary authorities to accommodate this surge in transactions demand, a failure unrecognized at the time, was associated with an antispeculative policy that drove real interest rates to very high levels in 1928-29, levels not approached again until the early 1980's.
- Subjects
UNITED States; ASSET allocation; GREAT Depression, 1929-1939; DEMAND for money; STOCK Market Crash, 1929; FOREIGN exchange; INTEREST rates; NEW York Stock Exchange
- Publication
American Economic Review, 1984, Vol 74, Issue 1, p43
- ISSN
0002-8282
- Publication type
Article