Regional Monetary Policies and the Great Depression

We compile a new monthly database for each Federal Reserve district between 1923-33 to analyze the national and regional nature of the monetary transmission mechanism around the Great Depression. We employ sign-identified structural VARs and narrative sign restrictions informed by uncontroversial theory and the historical record. Our findings demonstrate that there was significant heterogeneity in regional monetary policy as well as its dynamic effects on real economic activity. Prices in the 12 Fed districts were generally more responsive to contractionary regional monetary policy than national monetary policy shocks. The district reserve banks played a key role in the great contraction.