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Currency Crisis and Unemployment: Sterling in 1931

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Listed author(s):
  • Eichengreen, Barry
  • Jeanne, Olivier

Abstract

This paper studies the role of unemployment in sterling’s inter-war experience. According to most narrative accounts, the proximate cause of the 1931 sterling crisis was a high and rising unemployment rate that placed pressure on British governments to pursue reflationary policies. We present a model which, in the spirit of the ‘second generation’ approach to currency crises, highlights the conflict between the objective of low unemployment and defence of the currency and show that it can reproduce the main features of sterling’s inter-war experience. Econometric evidence lends further support to the view that the proximate cause of the sterling crisis was the dramatic rise in unemployment caused by external deflationary forces.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1898.

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Date of creation: Jun 1998
Handle: RePEc:cpr:ceprdp:1898
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Keywords: Currency Crisis; Gold Standard; Great Depression; Sterling; Unemployment;

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Find related papers by JEL classification:
  • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
  • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
  • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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  1. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
  2. Jeanne, Olivier & Masson, Paul, 2000. "Currency crises, sunspots and Markov-switching regimes," Journal of International Economics, Elsevier, vol. 50(2), pages 327-350, April.
  3. Hatton, T J, 1988. "A Quarterly Model of the Labour Market in Interwar Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(1), pages 1-25, February.
  4. Miller, Marcus & Sutherland, Alan, 1994. "Speculative Anticipations of Sterling's Return to Gold: Was Keynes Wrong?," Economic Journal, Royal Economic Society, vol. 104(425), pages 804-812, July.
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  12. Olivier Jeanne and Paul Masson., 1997. "Was the French Franc Crisis a Sunspot Equilibrium?," Center for International and Development Economics Research (CIDER) Working Papers C97-095, University of California at Berkeley.
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  22. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-1275, December.
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  25. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
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Cited by:

  1. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press, vol. 26(3), pages 285-317, Autumn.
  2. Eichengreen, Barry, 2003. "Three generations of crises, three generations of crisis models," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 1089-1094, December.
  3. Remi Bazillier & Boris Najman, 2017. "Labour and Financial Crises: Is Labour Paying the Price of the Crisis?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(1), pages 55-76, March.

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