When the North Last Headed South: Revisiting the 1930s
AbstractThe U.S recession of 2007 to 2009 is unique in the post-World-War-II experience by the broad company it kept. Activity contracted around the world, with the advanced countries of the North experiencing declines in spending normally the purview of the developing economies of the South. The last time that the economies of the North similarly headed south was the 1930s. This paper examines the role of policy in fostering recovery in that decade. With nominal short-term interest rates already near zero, monetary policy in most countries took the unconventional step of delinking currencies from the gold standard. However, analysis of a sample that includes developing countries shows that this was not as universally effective as often claimed, perhaps because the exit from gold was uncoordinated in time, scale, and scope and, in many countries, failed to bring about a substantial depreciation against the dollar. Fiscal policy was also active in the 1930s—many countries sharply increased government spending—but prone to reversals that may have undermined confidence. Countries that were more consistent in keeping spending high tended to recover more quickly.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 22612.
Date of creation: Mar 2009
Date of revision:
debt; fiscal policy; exchange rates; monetary policy; depression; international; crisis;
Other versions of this item:
- Carmen M. Reinhart & Vincent R. Reinhart, 2009. "When the North Last Headed South: Revisiting the 1930s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 251-276.
- Reinhart, Carmen & Reinhart, Vincent, 2010. "When the North Last Headed South: Revisiting the 1930s," CEPR Discussion Papers 7835, C.E.P.R. Discussion Papers.
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
- F3 - International Economics - - International Finance
- H6 - Public Economics - - National Budget, Deficit, and Debt
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