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How was the quantitative easing program of the 1930s Unwound?

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  • Jaremski, Matthew
  • Mathy, Gabriel

Abstract

Outside of the recent past, excess reserves have only concerned policymakers in one other period: the Great Depression. The data show that excess reserves in the 1930s were never actively unwound through a reduction in the monetary base. Nominal economic growth swelled required reserves while an exogenous reduction in monetary gold inflows due to war embargoes in Europe allowed excess reserves to naturally decline towards zero. Excess reserves fell rapidly in early 1941 and would have unwound fully even without the entry of the United States into World War II. Consequently, policy tightening was at no point necessary and could have contributed to the 1937–1938 Recession.

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  • Jaremski, Matthew & Mathy, Gabriel, 2018. "How was the quantitative easing program of the 1930s Unwound?," Explorations in Economic History, Elsevier, vol. 69(C), pages 27-49.
  • Handle: RePEc:eee:exehis:v:69:y:2018:i:c:p:27-49
    DOI: 10.1016/j.eeh.2017.10.003
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    More about this item

    Keywords

    Quantitative easing; Excess reserves; Gold flows; Great depression;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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