DeLong Smackdown of the Day: Andy Jalil on the Effects of Financial Panics
Andy Jalil:
DeLong and Summers (1986), in an influential work on historical changes in business cycle variability, concluded that (1) the real output effects of panics are smaller than generally realized and (2) there is little support for the hypothesis that panics were a substantial source of economic instability prior to WWII. However, my results show the exact opposite: major banking panics have large and significant real output effects and they were a significant source of economic instability before WWII. DeLong and Summers missed the link between panics and downturns because they relied on a flawed panic series...
