Discussion paper

DP15287 The Great Depression as a Saving Glut

Facing the Great Depression, Keynes blamed the detrimental consequences of precautionary savings on growth (paradox of thrift). Yet, the magnitude, forms and effects of savings accumulation remain unexplored in studies on the international economic crash of the 1930s. Based on new data for 22 countries, we document that the Great Depression was associated with a large international increase in savings institutions’ deposits. Banking crises spurred precautionary savings. Panel estimations show a negative conditional correlation between real GDP and deposits in savings institutions when a banking crisis hit. A back-of-the-envelope calculation suggests that the negative effect of precautionary savings on growth was at least as large as the direct effect of the decline in banking activity. The evolution of the saving rate began to reverse as countries left the gold standard.


Degorce, V and E Monnet (2020), ‘DP15287 The Great Depression as a Saving Glut‘, CEPR Discussion Paper No. 15287. CEPR Press, Paris & London. https://cepr.org/publications/dp15287