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Threat of a capital levy, expected devaluation and interest rates in France during the interwar period

  • Hautcoeur, Pierre-Cyrille
  • Sicsic, Pierre

The aim of this paper is to isolate and measure the respective importance of political and economic aspects in two critical episodes of the French interwar period: the stabilization process of the mid-1920s and the reluctance to abandon the gold standard during the 1930s. We do this by separating expectations of taxation and of devaluation that are implicitly included in the prices of various categories of French bonds. About the 1924-26 crisis, we show first that there was no expectation of a government default; second that a substantial part of the high level of interest rate in 1925 can be explained by expectations of a capital levy or other taxation devices; third that hyperinflation was not expected even at the moment of maximum price rise since implied five years interest rate was lower than 20% and since the expected value of the franc was not as low as the spot one. For the 1930s, we show that expectations of a depreciation of the franc explain the rise in interest rates, so that no independent effect of fiscal policy was expected.

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Article provided by Cambridge University Press in its journal European Review of Economic History.

Volume (Year): 3 (1999)
Issue (Month): 01 (April)
Pages: 25-56

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Handle: RePEc:cup:ereveh:v:3:y:1999:i:01:p:25-56_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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  1. Cecchetti, Stephen G, 1988. "The Case of the Negative Nominal Interest Rates: New Estimates of the Term Structure of Interest Rates during the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1111-41, December.
  2. Sicsic, Pierre, 1992. "Was the franc poincare deliberately undervalued?," Explorations in Economic History, Elsevier, vol. 29(1), pages 69-92, January.
  3. Prati, Alessandro, 1991. "Poincare's stabilization : Stopping a run on government debt," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 213-239, April.
  4. Baum, Christopher F & Thies, Clifford F, 1992. "On the Construction of Monthly Term Structures of U.S. Interest Rates, 1919-1930," Computer Science in Economics & Management, Society for Computational Economics, vol. 5(3), pages 221-46, August.
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