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The Economic Consequences of the Franc Poincare

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  • Barry Eichengreen
  • Charles Wyplosz

Abstract

In this paper we reassess the cyclical performance of the French economy in the 1920s, focusing in particular on the period 1926-1931 and on France's resistance to the Great Depression. France expanded rapidly after 1926 and, unlike the other leading industrial economies, resisted the onset of the Depression until 1931. We find strikingly little support for the conventional explanation for these events, which emphasizes an undervalued French franc and an export-led boom. While French exports as a share of GDP turned down as early as 1928, the economy continued to expand for several subsequent years. Investment, not exports, emerges as the proximate source of the French economy's resistance to the Great Depression. And fiscal policy emerges as the major determinant of the surge in French investment spending. Previous accounts have emphasized the role of monetary policy in determining the seal and nominal exchange rates ostensibly responsible for French economic fluctuations in the decade after 1921. In contrast, we argue here for a more balanced view of the roles of monetary and fiscal policies in French macroeconomic fluctuations over that critical decade.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2064.

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Date of creation: Nov 1986
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Publication status: published as "Economic Consequences of the Franc Poincare." From Economic Effects ofthe Government Budget, edited by Elhanan Helpman, Assaf Razin, and Efraim Sadka, pp. 257-286. Cambridge, MA: MIT Press, 1988.
Handle: RePEc:nbr:nberwo:2064

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  1. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. William H. Branson & Willem H. Buiter, 1982. "Monetary and Fiscal Policy with Flexible Exchange Rates," NBER Working Papers 0901, National Bureau of Economic Research, Inc.
  3. Jacob A. Frenkel & Carlos A. Rodriguez, 1982. "Exchange Rate Dynamics and the Overshooting Hypothesis," NBER Working Papers 0832, National Bureau of Economic Research, Inc.
  4. Sachs, Jeffrey, 1980. "Wages, Flexible Exchange Rates, and Macroeconomic Policy," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 731-47, June.
  5. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
  6. Abel, Andrew B., 1980. "Empirical investment equations : An integrative framework," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 39-91, January.
  7. Walter Galenson & Arnold Zellner, 1957. "International Comparison of Unemployment Rates," NBER Chapters, in: The Measurement and Behavior of Unemployment, pages 439-584 National Bureau of Economic Research, Inc.
  8. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  9. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  10. Cuddington, John T. & Vinals, Jose M., 1986. "Budget deficits and the current account : An Intertemporal Disequilibrium Approach," Journal of International Economics, Elsevier, vol. 21(1-2), pages 1-24, August.
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Cited by:
  1. Pierre Villa, 1996. "France in the Early Depression of the Thirties," Working Papers 1996-06, CEPII research center.
  2. Bridji, Slim, 2013. "The French Great Depression: A business cycle accounting analysis," Explorations in Economic History, Elsevier, vol. 50(3), pages 427-445.

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