Advanced Search
MyIDEAS: Login to save this paper or follow this series

Was Expansionary Monetary Policy Feasible During the Great Contraction? An Examination of the Gold Standard Constraint

Contents:

Author Info

  • Michael D. Bordo
  • Ehsan U. Choudhri
  • Anna J. Schwartz

Abstract

The recent consensus view, that the gold standard was the leading cause of the worldwide Great Depression 1929-33, stems from two propositions: (1) Under the gold standard, deflationary shocks were transmitted between countries and, (2) for most countries, continued adherence to gold prevented monetary authorities from offsetting banking panics and blocked their recoveries. In this paper we contend that the second proposition applies only to small open economies with limited gold reserves. This was not the case for the US, the largest country in the world, holding massive gold reserves. The US was not constrained from using expansionary policy to offset banking panics, deflation, and declining economic activity. Simulations, based on a model of a large open economy, indicate that expansionary open market operations by the Federal Reserve at two critical junctures (October 1930 to February 1931; September 1931 through January 1932) would have been successful in averting the banking panics that occurred, without endangering convertibility. Indeed had expansionary open market purchases been conducted in 1930, the contraction would not have led to the international crises that followed.

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.nber.org/papers/w7125.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7125.

as in new window
Length:
Date of creation: May 1999
Date of revision:
Publication status: published as Bordo, Michael D. & Choudhri, Ehsan U. & Schwartz, Anna J., 2002. "Was Expansionary Monetary Policy Feasible during the Great Contraction? An Examination of the Gold Standard Constraint," Explorations in Economic History, Elsevier, vol. 39(1), pages 1-28, January.
Handle: RePEc:nbr:nberwo:7125

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

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. Robert P. Flood & Nancy P. Marion, 1996. "Speculative Attacks: Fundamentals and Self-Fulfilling Prophecies," NBER Working Papers 5789, National Bureau of Economic Research, Inc.
  2. 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.
  3. Barry Eichengreen & Peter Temin, 1997. "The Gold Standard and the Great Depression," NBER Working Papers 6060, National Bureau of Economic Research, Inc.
  4. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(1), pages 1-28, February.
  5. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, Elsevier, vol. 17(1-2), pages 1-13, August.
  6. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 148-66, February.
  7. Meltzer, Allan & Goodhart, C.A.E., 2005. "A History Of The Federal Reserve," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 9(02), pages 267-275, April.
  8. Christina D. Romer, 1993. "The Nation in Depression," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 7(2), pages 19-39, Spring.
  9. Bordo, Michael D & Eichengreen, Barry, 1997. "Implications of the Great Depression for the Development of the International Monetary System," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1680, C.E.P.R. Discussion Papers.
  10. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 12(4), pages 565-74, November.
  11. Ben Bemanke & Harold James, 1991. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Markets and Financial Crises, pages 33-68 National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. 'A Century of U.S. Central Banking: Goals, Frameworks, Accountability'
    by Mark Thoma in Economist's View on 2013-07-10 13:48:26
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Richhild Moessner & William A. Allen, 2011. "Las crisis bancarias y el sistema monetario internacional en la Gran Depresión y en la actualidad," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, Universidad Externado de Colombia - Facultad de Economía, vol. 13(25), pages 43-87, July-Dece.
  2. Mark Billings & Forrest Capie, 2011. "Financial crisis, contagion, and the British banking system between the world wars," Business History, Taylor & Francis Journals, Taylor & Francis Journals, vol. 53(2), pages 193-215.
  3. Claude Diebolt & Antoine Parent & Jamel Trabelsi, 2011. "Comment la croissance américaine aurait-elle réagi à une politique monétaire expansionniste en 1929 ? Les enseignements cliométriques d’une simulation SVAR," Working Papers, Association Française de Cliométrie (AFC) 11-10, Association Française de Cliométrie (AFC).
  4. Steven Horwitz, 2011. "Unfortunately Unfamiliar with Robert Higgs and Others: A Rejoinder to Gauti Eggertsson on the 1930s," Econ Journal Watch, Econ Journal Watch, vol. 8(1), pages 1-12, January.
  5. Karras, Georgios & Lee, Jin Man & Stokes, Houston, 2006. "Why are postwar cycles smoother? Impulses or propagation?," Journal of Economics and Business, Elsevier, Elsevier, vol. 58(5-6), pages 392-406.
  6. Gauti B. Eggertsson, 2005. "Great expectations and the end of the depression," Staff Reports, Federal Reserve Bank of New York 234, Federal Reserve Bank of New York.
  7. Michael D. Bordo & Anna J. Schwartz, 1998. "Under What Circumstances, Past and Present, Have International Rescues of Countries in Financial Distress Been Successful?," NBER Working Papers 6824, National Bureau of Economic Research, Inc.
  8. Bordo, Michael D., 2006. "Review of A History of the Federal Reserve. Volume I (2003) by Allan H. Meltzer," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(3), pages 633-657, April.
  9. Michael D. Bordo & Andrew Filardo, 2004. "Deflation and Monetary Policy in a Historical Perspective: Remembering the Past or Being Condemned to Repeat It?," NBER Working Papers 10833, National Bureau of Economic Research, Inc.
  10. Pierre L. Siklos, 2007. "The FedÕs Reaction to the Stock Market During the Great Depression: Fact or Artefact?," Working Paper Series, The Rimini Centre for Economic Analysis 33-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  11. Barry Eichengreen, 2002. "Still Fettered After All These Years," NBER Working Papers 9276, National Bureau of Economic Research, Inc.
  12. Taylor, Jason E. & Neumann, Todd C., 2013. "The effect of institutional regime change within the new deal on industrial output and labor markets," Explorations in Economic History, Elsevier, Elsevier, vol. 50(4), pages 582-598.
  13. Chang-Tai Hsieh & Christina D. Romer, 2001. "Was the Federal Reserve Fettered? Devaluation Expectations in the 1932 Monetary Expansion," NBER Working Papers 8113, National Bureau of Economic Research, Inc.
  14. Michael D. Bordo, 2006. "Globalization and imbalances in historical perspective," Policy Discussion Papers, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, issue Jan.
  15. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(3), pages 569-596.
  16. Michael D. Bordo, 2005. "Historical Perspective on Global Imbalances," NBER Working Papers 11383, National Bureau of Economic Research, Inc.

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:nbr:nberwo:7125. 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: ().

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.