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Scylla and Charybdis. The European Economy and Poland's Adherence to Gold, 1928-1936

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  • Nikolaus Wolf

Abstract

This paper examines the timing of exit from the gold-exchange standard for European countries based on a panel of monthly observations 1928-1936 for two purposes: first it aims to understand the enormous variation in monetary policy choices across Europe. I show that the pattern of exit from gold can be understood in terms of variation in factors commonly suggested in the theoretical literature, which makes it possible to predict with reasonable accuracy the very month when a country will exit gold in the 1930s. Second, I analyse the case of Poland more closely because it appears to be an intriguing outlier. Poland did not leave gold until April 1936 and suffered through one of the worst examples of a depression, with massive deflation and a complete collapse of industrial production. The estimated model fares worst for Poland, and predicts an exit even later than April 1936. By closer inspection, the factors that drive this prediction are the non-democratic character of the regime and a surprisingly high degree of trade integration with France. I argue that Poland's monetary policy was determined by attempts of the Piłsudski regime to defend Poland against foreign (esp. German) aggression. I provide evidence that strongly supports this view until about mid-1933. Ironically, just when Poland had joined the gold-bloc there were signs of a broad strategic reorientation, which paved the way for an exit in 1936.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0834.

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Date of creation: Nov 2007
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Handle: RePEc:cep:cepdps:dp0834

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Gold-Exchange Standard; Interwar Period; Europe; Poland;

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  1. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  2. Michael Bordo & Michael Edelstein, 1999. "Was Adherence to the Gold Standard a "Good Housekeeping Seal of Approval" During the Interwar Period?," NBER Working Papers 7186, National Bureau of Economic Research, Inc.
  3. Michael W. Klein & Nancy P. Marion, 1994. "Explaining the Duration of Exchange-Rate Pegs," NBER Working Papers 4651, National Bureau of Economic Research, Inc.
  4. Kirsten Wandschneider, 2005. "The Stability of the Inter-war Gold Exchange Standard. Did Politics Matter?," Middlebury College Working Paper Series 0518, Middlebury College, Department of Economics.
  5. Wolf, Nikolaus, 2005. "Path dependent border effects: the case of Poland's reunification (1918-1939)," Explorations in Economic History, Elsevier, vol. 42(3), pages 414-438, July.
  6. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 63-132.
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