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Monetary policy and business cycles in the interwar years: The Scandinavian experience

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  • Klovland, Jan T.

Abstract

Evidence from newly constructed monthly indices of manufacturing production shows that differences between the Scandinavian countries regarding business cycles in the interwar years were closely related to monetary policy decisions. In the 1920s Sweden made an early return to gold, while Denmark and Norway experienced large fluctuations in nominal and real exchange rates before restoring the gold standard at the prewar parity in 1927–28. The differences in monetary policy were mirrored in the business cycle history; Denmark and Norway being alone in having a particularly severe contraction period in the years 1925–27, referred to as the gold-parity depression. The nominal depreciation of the effective exchange rates following the abandonment of the gold standard in September 1931 led to a significant real depreciation in all three countries. Econometric evidence confirms the view that the decision to leave gold was instrumental in dampening the contractionary business cycle impulses from abroad during the years of the Great Depression.

Suggested Citation

  • Klovland, Jan T., 1998. "Monetary policy and business cycles in the interwar years: The Scandinavian experience," European Review of Economic History, Cambridge University Press, vol. 2(3), pages 309-344, December.
    • Handle: RePEc:cup:ereveh:v:2:y:1998:i:03:p:309-344_00
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    Cited by:

    1. Ola Grytten & Arngrim Hunnes, 2009. "Price stability and inflation persistence during the international gold standard: The Scandinavian case," Working Paper 2009/20, Norges Bank.
    2. Mathy, Gabriel P. & Meissner, Christopher M., 2011. "Business cycle co-movement: Evidence from the Great Depression," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 362-372.
    3. da Rocha, Bruno T. & Solomou, Solomos, 2015. "The effects of systemic banking crises in the inter-war period," Journal of International Money and Finance, Elsevier, vol. 54(C), pages 35-49.
    4. Bertil Holmlund, 2013. "Wage and employment determination in volatile times: Sweden 1913-1939," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 7(2), pages 131-159, May.
    5. Gunnar Bårdsen & Jurgen Doornik & Jan Tore Klovland, 2004. "A European-type wage equation from an American-style labor market: Evidence from a panel of Norwegian manufacturing industries in the 1930s," Working Paper 2004/8, Norges Bank.
    6. Kim Abildgren, 2012. "Financial structures and the real effects of credit-supply shocks in Denmark 1922-2011," European Review of Economic History, European Historical Economics Society, vol. 16(4), pages 490-510, November.
    7. Gunnar Bårdsen & Jurgen A. Doornik & Jan Tore Klovland, 2010. "Wage Formation and Bargaining Power during the Great Depression," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(1), pages 211-233, March.
    8. Grytten, Ola Honningdal, 2020. "Two centuries of economic growth: Norwegian GDP 1816-2020," Discussion Paper Series in Economics 10/2020, Norwegian School of Economics, Department of Economics.
    9. Arild Sæther & Ib E. Eriksen, 2014. "Ragnar Frisch and the Postwar Norwegian Economy," Econ Journal Watch, Econ Journal Watch, vol. 11(1), pages 46-80, January.
    10. Gabriel P. Mathy & Christopher M. Meissner, 2011. "Trade, Exchange Rate Regimes and Output Co-Movement: Evidence from the Great Depression," NBER Working Papers 16925, National Bureau of Economic Research, Inc.
    11. Klovland, Jan Tore, 2014. "Challenges for the construction of historical price indices: The case of Norway, 1777-1920," Discussion Paper Series in Economics 5/2014, Norwegian School of Economics, Department of Economics.
    12. Ola Grytten & Arngrim Hunnes, 2009. "The historical connection between short term output and prices in a small open economy," Working Paper 2009/21, Norges Bank.
    13. Ola Honningdal Grytten, 2022. "Revising growth history: new estimates of GDP for Norway, 1816–2019," Economic History Review, Economic History Society, vol. 75(1), pages 181-202, February.
    14. Ola Honningdal Grytten, 2012. "Financial crises and monetary expansion," Working Paper 2011/21, Norges Bank.

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