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Gold sterilization and the recession of 1937–19381

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  • Irwin, Douglas A.

Abstract

The recession of 1937–8 is often cited as illustrating the dangers of withdrawing fiscal and monetary stimulus too early in a weak recovery. Yet our understanding of this severe downturn is incomplete: existing studies find that changes in fiscal policy were small in comparison to the magnitude of the downturn and that higher reserve requirements were not binding on banks. This article focuses on a neglected change in monetary policy, the sterilization of gold inflows during 1937, and finds that it exerted a powerful contractionary force during this period. The transmission of this monetary shock to the real economy appears to have worked through lower asset (equity) prices and higher interest rates.

Suggested Citation

  • Irwin, Douglas A., 2012. "Gold sterilization and the recession of 1937–19381," Financial History Review, Cambridge University Press, vol. 19(3), pages 249-267, December.
    • Handle: RePEc:cup:fihrev:v:19:y:2012:i:03:p:249-267_00
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    1. 1,682 days and all's well
      by JP Koning in Moneyness on 2013-11-13 08:25:00

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    Cited by:

    1. Jaremski, Matthew & Mathy, Gabriel, 2018. "How was the quantitative easing program of the 1930s Unwound?," Explorations in Economic History, Elsevier, vol. 69(C), pages 27-49.
    2. Madsen, Jakob B., 2019. "Wealth and inequality over eight centuries of British capitalism," Journal of Development Economics, Elsevier, vol. 138(C), pages 246-260.
    3. Sebastian Edwards, 2017. "The London Monetary and Economic Conference of 1933 and the End of the Great Depression," Open Economies Review, Springer, vol. 28(3), pages 431-459, July.
    4. Calomiris, Charles W. & Mason, Joseph R. & Wheelock, David C., 2023. "Did doubling reserve requirements cause the 1937–38 recession? New evidence on the impact of reserve requirements on bank reserve demand and lending," Journal of Financial Intermediation, Elsevier, vol. 56(C).
    5. Barry Eichengreen, 2013. "Does the Federal Reserve Care about the Rest of the World?," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 87-104, Fall.
    6. Margaret M. Jacobson & Eric M. Leeper & Bruce Preston, 2019. "Recovery of 1933," NBER Working Papers 25629, National Bureau of Economic Research, Inc.
    7. Jakob Brochner Madsen, 2016. "Wealth And Inequality In Eight Centuries Of British Capitalism," Monash Economics Working Papers 20-16, Monash University, Department of Economics.

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