The Pre- and Post-WWI Dynamics of Saving, Investment, and Interest Rates: A Cross-Country Comparison

The study examines the dynamics of interest rates over 1904–1929 through the joint behavior of investment and saving across a diverse set of economies. It compares belligerents and occupied countries (Belgium, France, Italy, Germany), neutrals (the Netherlands, Sweden, Norway), extra-European cases (Australia, Japan), and the United Kingdom as the principal financial center. We document a broad-based rise in interest rates after World War I but operating through different structural channels: destruction and reconstruction pressures in Belgium and France; fiscal/budgetary burdens and the decision to return to gold in the United Kingdom and Italy; and institutional/market depth specificities in Japan. Methodologically, the study uses the Jorda–Schularick–Taylor Macrohistory Database (JST) Macrohistory Database (Release 6). Interpreting short-term nominal rate trends as informative about natural rate of interest (r*) rests on well-established money-demand/velocity relationships, while the post-war environment adds two additional layers: (i) the gold-exchange regime inaugurated after Genoa (1922) — the Genoa Conference on Economic and Financial Questions, which reconfigured the international hierarchy of “safe” assets without a single hegemonic issuer; and (ii) elevated macro-uncertainty, which raised risk premia even as reconstruction boosted capital demand. The findings speak to contemporary debates on safe-asset supply, fiscal capacity, and the identification of r* from market yields. Large, system-wide shocks can simultaneously shift saving–investment balances, risk premia, and the international monetary architecture—mechanisms that remain pertinent for interpreting interest-rate behavior in today’s crises.