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Was the Federal Reserve Constrained by the Gold Standard During the Great Depression? Evidence from the 1932 Open Market Purchase Program

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  • HSIEH, CHANG-TAI
  • ROMER, CHRISTINA D.

Abstract

Could the Federal Reserve have reversed the decline in the money supply during the Great Depression without causing a loss of confidence in the U.S. commitment to the gold standard? This article uses the $1 billion expansionary open market operation in 1932 as a crucial case study. Using forward exchange rates and interest rate differentials to measure devaluation expectations, we find virtually no evidence that the large monetary expansion led investors to believe that the United States would devalue. The financial press and Federal Reserve records also show scant evidence of expectations of devaluation or fear of speculative attack.

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Bibliographic Info

Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 66 (2006)
Issue (Month): 01 (March)
Pages: 140-176

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Handle: RePEc:cup:jechis:v:66:y:2006:i:01:p:140-176_00

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Cited by:
  1. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
  2. Bernanke, Ben S., 2013. "A Century of U.S. Central Banking: Goals, Frameworks, Accountability : a speech at the "The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Futur," Speech 617, Board of Governors of the Federal Reserve System (U.S.).
  3. Masahiko Shibamoto & Masato Shizume, 2014. "Exchange Rate Adjustment, Monetary Policy and Fiscal Stimulus in Japan's Escape from the Great Depression," Discussion Paper Series DP2014-12, Research Institute for Economics & Business Administration, Kobe University.

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