Advanced Search
MyIDEAS: Login

Currency crisis and collapse in interwar Greece: Predicament or Policy Failure?

Contents:

Author Info

  • Nicos Christodoulakis
Registered author(s):

    Abstract

    Greece 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 Info

    If 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.
    File URL: http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/CMS%20pdf/Publications/GreeSE/GreeSE-No60.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Hellenic Observatory, LSE in its series GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe with number 60.

    as in new window
    Length:
    Date of creation: Jul 2012
    Date of revision:
    Handle: RePEc:hel:greese:60

    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

    Related research

    Keywords: Gold Exchange Standard; reserves; exchange rate.;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. 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.
    2. Dornbusch, Rudiger, 1987. "Collapsing exchange rate regimes," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 71-83, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. 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.
    2. Yannis Valinakis, 2012. "Greece’s European Policy Making," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 63, Hellenic Observatory, LSE.
    3. Kostas Ifantis, 2013. "The US and Turkey in the fog of Regional Uncertainty," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 73, Hellenic Observatory, LSE.
    4. Manussos Marangudakis & Kostas Rontos & Maria Xenitidou, 2013. "State Crisis and Civil Consciousness in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 77, Hellenic Observatory, LSE.
    5. Helen Caraveli & Efthymios G. Tsionas, 2012. "Economic Restructuring, Crises and the Regions: The Political Economy of Regional Inequalities in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 61, Hellenic Observatory, LSE.
    6. Yiannos Katsourides, 2013. "Political Parties and Trade Unions in Cyprus," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 74, Hellenic Observatory, LSE.
    7. Spyros Kosmidis, 2013. "Government Constraints and Economic Voting in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 70, Hellenic Observatory, LSE.
    8. 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.
    9. Vassilis Monastiriotis & Angelo Martelli, 2013. "Beyond Rising Unemployment: Unemployment Risk, Crisis and Regional Adjustments in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 80, Hellenic Observatory, LSE.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:hel:greese:60. See general information about how to correct material in RePEc.

    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.