Currency crisis and collapse in interwar Greece: Predicament or Policy Failure?
AbstractGreece in 1928 viewed the anchoring to the Gold Exchange Standard as the imperative choice of the time in order to implant financial credibility and carry over an ambitious plan of reforms to modernise the economy. But after the pound sterling exited the system in 1931, Greece, instead of following suit, chose a defence that drove interest rates at high levels, squeezed the real economy and exhausted foreign reserves. Unable to borrow from abroad, it quitted the system in 1932 and the Drachma was heavily devalued. Despite a rise in competitiveness, the erosion of real incomes cut domestic demand, unemployment continued to rise and the country entered a period of acute social and political instability. The lessons are perhaps relevant today for the costs that Greece would face by exiting the Eurozone. A model of Balance of Payments crises with partial capital controls is employed to analyze the response of currency pegs to external shocks and examine under which circumstances the regime collapses. Its main predictions are found to be in agreement with the actual outcomes in 1932.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Hellenic Observatory, LSE in its series GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe with number 60.
Date of creation: Jul 2012
Date of revision:
Contact details of provider:
Postal: Houghton Street, London WC2A 2AE
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/
More information through EDIRC
Gold Exchange Standard; reserves; exchange rate.;
Find related papers by JEL classification:
- N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
- N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aleh Tsyvinski & Arijit Mukherji & Christian Hellwig, 2006.
"Self-Fulfilling Currency Crises: The Role of Interest Rates,"
American Economic Review,
American Economic Association, vol. 96(5), pages 1769-1787, December.
- Christian Hellwig & Arijit Mukherji & Aleh Tsyvinski, 2005. "Self-Fulfilling Currency Crises: The Role of Interest Rates," NBER Working Papers 11191, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1987. "Collapsing exchange rate regimes," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 71-83, October.
- Emmanuel Mamatzakis, 2013.
"Are there any animal spirits behind the scenes of the Euro area sovereign debt crisis?,"
LSE Research Online Documents on Economics
50984, London School of Economics and Political Science, LSE Library.
- Emmanuel Mamatzakis, 2013. "Are there any Animal Spirits behind the Scenes of the Euro area Sovereign Debt Crisis?," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 72, Hellenic Observatory, LSE.
- Yannis Valinakis, 2012. "Greece’s European Policy Making," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 63, Hellenic Observatory, LSE.
- Kostas Ifantis, 2013. "The US and Turkey in the fog of Regional Uncertainty," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 73, Hellenic Observatory, LSE.
- Manussos Marangudakis & Kostas Rontos & Maria Xenitidou, 2013. "State Crisis and Civil Consciousness in Greece," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 77, Hellenic Observatory, LSE.
- Helen Caraveli & Efthymios G. Tsionas, 2012. "Economic Restructuring, Crises and the Regions: The Political Economy of Regional Inequalities in Greece," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 61, Hellenic Observatory, LSE.
- Yiannos Katsourides, 2013. "Political Parties and Trade Unions in Cyprus," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 74, Hellenic Observatory, LSE.
- Spyros Kosmidis, 2013. "Government Constraints and Economic Voting in Greece," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 70, Hellenic Observatory, LSE.
- Nicholas Apergis & Arusha Cooray, 2013.
"New evidence on the remedies of the Greek sovereign debt problem,"
LSE Research Online Documents on Economics
55266, London School of Economics and Political Science, LSE Library.
- Nicholas APERGIS & Arusha COORAY, 2013. "New Evidence on the Remedies of the Greek Sovereign Debt Problem," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 79, Hellenic Observatory, LSE.
- Vassilis Monastiriotis & Angelo Martelli, 2013. "Beyond Rising Unemployment: Unemployment Risk, Crisis and Regional Adjustments in Greece," GreeSE â Hellenic Observatory Papers on Greece and Southeast Europe 80, Hellenic Observatory, LSE.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vassilis Monastiriotis).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.