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Shooting on a Moving Target: Eyplaining European Bank Rates during the Interwar Period

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  • Kirsten Wandschneider
  • Nikolaus Wolf

Abstract

This paper describes the monetary policy response of countries during the inter-war period. How did central banks react to the Great Depression? How did countries balance the externals demands of the gold standard with domestic policy pressures? What was the optimal level of international policy coordination? We use weekly data over the period 1925-1936 to estimate central bank rate reaction functions for a panel of 22 countries during the inter-war gold standard. The estimates suggest to us changing objectives for monetary policy. Countries moved away from the sole objective of convertibility and towards a more ‘modern’ monetary policy based on exchange rate stabilization, but not yet output stabilization or even modern price level targeting. Importantly, this move to exchange rate stabilization was accompanied by the formation of monetary policy blocs around pre-existing economic relations. Countries’ interwar policy choices offer lessons for countries remaining in or choosing to join the European Monetary Union today.

Suggested Citation

  • Kirsten Wandschneider & Nikolaus Wolf, 2009. "Shooting on a Moving Target: Eyplaining European Bank Rates during the Interwar Period," CESifo Working Paper Series 2694, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2694
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary policy; great depression; reaction functions;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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