Buried in the vaults of central banks–monetary gold hoarding and the slide into the Great Depression

I study the role of central bank gold hoarding as a cause for the initial slide into the Great Depression. The notion that monetary forces played an important role in bringing about the depression is well established among many economic historians, but has more recently met some skepticism by formal macroeconometric work. This paper models monetary disturbances as shocks to central bank gold demand, and adds narrative information on key events to sharpen shock identification, while making use of a newly-assembled monthly data set of the interwar world economy. Monetary shocks are found to play an important role in the collapse in prices and output during the initial slide into the Great Depression, whereas non-monetary factors deepened the downturn from 1931 onward.