DurableConsumption_BankFailures_Newspapers

This
paper explores simultaneous developments in the banking sector and the real
economy during the Great Depression and whether these are related to shifts in
beliefs about economic prospects. It
identifies a notable coincidence of bank closures and declines in consumer
durable consumption (new automobile purchases) in Ohio in the early 1930s. To examine whether shifts in beliefs and the
economic concerns of households and businesses may have mattered, I test
whether keywords from local newspapers related to economic prospects or
sentiments are associated with subsequent bank closures and declines in
automobile purchases. The results support
the idea that beliefs mattered, even after accounting for economic
fundamentals. The analysis also
highlights the importance of local economic conditions in determining behavior.