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Implications of the Great Depression for the Development of the International Monetary System

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  • Bordo, Michael D
  • Eichengreen, Barry

Abstract

In this paper we speculate about the evolution of the international monetary system in the last two-thirds of the twentieth century absent the Great Depression, but present the major post-Depression political and economic upheavals: World War II and the Cold War. We argue that without the Depression the gold-exchange standard of the 1920s would have persisted until the outbreak of World War II. It would have been suspended during the war and for a period of post-war reconstruction before being restored in the first-half of the 1950s. The Bretton Woods Conference would not have taken place, nor would a Bretton Woods System of pegged-but-adjustable exchange rates and restrictions on capital account convertibility have been established. Instead, an unreformed gold-exchange standard of pegged exchange rates and unlimited international capital mobility would have been restored after World War II. But this gold-exchange standard would have collapsed even earlier than was actually the case of Bretton Woods. The move towards floating exchange rates that followed would have taken place well before 1971 in our counterfactual. We construct a model of the international monetary system from 1928–71 and simulate its implications for the determination of the world price level and the durability of the hypothetical gold-exchange standard. We then examine, based on regressions for a 61-country panel, the implications for economic growth and resource allocation of allowing 1920s-style international capital mobility after World War II. Based on the implications of our model simulations and the capital controls regressions we contemplate the implications for institution building and international cooperation of the ‘no Great Depression’ scenario.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1680.

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Date of creation: Jul 1997
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Handle: RePEc:cpr:ceprdp:1680

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Keywords: Exchange Rates; Great Depression; International Monetary System;

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References

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  19. Dani Rodrik, 1994. "Getting Interventions Right: How South Korea and Taiwan Grew Rich," NBER Working Papers 4964, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers 2910, C.E.P.R. Discussion Papers.
  2. Barry Eichengreen & David Leblang, 2003. "Capital account liberalization and growth: was Mr. Mahathir right?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 205-224.
  3. Barry Eichengreen, 2000. "International Economic Policy in the Wake of the Asian Crisis," International Finance 0003005, EconWPA.
  4. Barry Eichengreen, 2004. "Global Imbalances and the Lessons of Bretton Woods," NBER Working Papers 10497, National Bureau of Economic Research, Inc.
  5. Bordo, Michael D., 2012. "Could the United States have had a better central bank? An historical counterfactual speculation," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 597-607.
  6. Michael D. Bordo & Ehsan U. Choudhri & Anna J. Schwartz, 1999. "Was Expansionary Monetary Policy Feasible During the Great Contraction? An Examination of the Gold Standard Constraint," NBER Working Papers 7125, National Bureau of Economic Research, Inc.
  7. James M. Boughton, 2004. "The IMF and the force of History," IMF Working Papers 04/75, International Monetary Fund.
  8. Jonathan David Ostry & Jeromin Zettelmeyer, 2005. "Strengthening IMF Crisis Prevention," IMF Working Papers 05/206, International Monetary Fund.
  9. Michael D. Bordo & Marc Flandreau, 2001. "Core, Periphery, Exchange Rate Regimes, and Globalization," Sciences Po publications n°3077, Sciences Po.
  10. Michael D. Bordo & Barry Eichengreen, 1998. "The Rise and Fall of a Barbarous Relic: The Role of Gold in the International Monetary SYstem," NBER Working Papers 6436, National Bureau of Economic Research, Inc.
  11. Cohen, Joseph N & Linton, April, 2010. "The historical relationship between inflation and political rebellion, and what it might teach us about neoliberalism," MPRA Paper 22522, University Library of Munich, Germany.

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