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Bank Reserves and Business Fluctuations

Clark Warburton
Journal of the American Statistical Association
Vol. 43, No. 244 (Dec., 1948), pp. 547-558
DOI: 10.2307/2280705
Stable URL: http://www.jstor.org/stable/2280705
Page Count: 12
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Bank Reserves and Business Fluctuations
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Abstract

The belief that severe business fluctuations are caused primarily by the operations of banks, through their influence on the quantity of the circulating medium, was widely held during the nineteenth century and the first three decades of the twentieth. During the latter part of this period variations in bank reserves were believed to be the chief causal factor underneath changes in the circulating medium furnished by the banks. This paper describes a study of factual data since 1918 in the light of that theory. To make the investigation, it was necessary to develop several new time series from available statistical material, and to make appropriate allowance for growth trends. The results support the theory. There is a case by case correspondence between the peaks and troughs in the series of effective member bank reserves and the business cycle reference dates of the National Bureau of Economic Research, with leadership in reserves; and the duration and depth of periods of recession and recovery intervening between the turning points are closely associated with the duration and depth of deviations in reserves from the line of growth.

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