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The Comparative Performance of Fixed and Flexible Exchange Rate Regimes: Interwar Evidence

  • Eichengreen, Barry

This paper examines three interwar exchange rate regimes: the free float of the early 1920s, the fixed rates of 1927-31 and the managed float of the early 1930s. Nominal rates were considerably more variable under free than under managed floating. The reduction in nominal exchange rate variability achieved with the move from free to managed floating was not accompanied by a commensurate fall in exchange rate uncertainty because government policy seems to have been subject to periodic shifts that heightened risk. There was a strong association between nominal and real exchange rate predictability in both the free float of 1922-6 and the managed float of 1932-6. There was no direct correspondence between the degree of exchange rate stability and the volume of international capital flows. Capital controls, which were considerably more prevalent under managed floating than either of the other regimes, provide a major part of the explanation for differences across regimes in the magnitude of real interest differentials.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 349.

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Date of creation: Nov 1989
Date of revision:
Handle: RePEc:cpr:ceprdp:349
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  1. Francesco Giavazzi & Alberto Giovannini, 1988. "Can The European Monetary System Be Copied Outside Europe? Lessons From Ten Years of Monetary Policy Coordination In Europe," NBER Working Papers 2786, National Bureau of Economic Research, Inc.
  2. Eichengreen, Barry, 1989. "International Monetary Istability Between the Wars: Structural Flaws or Misguided Policies?," Department of Economics, Working Paper Series qt5r60q801, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Aliber, Robert Z, 1973. "The Interest Rate Parity Theorem: A Reinterpretation," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1451-59, Nov.-Dec..
  4. Eichengreen, Barry, 1988. "Real exchange rate behavior under alternative international monetary regimes : Interwar evidence," European Economic Review, Elsevier, vol. 32(2-3), pages 363-371, March.
  5. Jeffrey A. Frankel & Alan T. MacArthur, 1987. "Political vs. Currency Premia in International Real Interest Differentials: A Study of Forward Rates for 24 Countries," NBER Working Papers 2309, National Bureau of Economic Research, Inc.
  6. Eichengreen, Barry, 1984. "International Policy Coordination in Historical Perspective: A View from the Interwar Years," CEPR Discussion Papers 29, C.E.P.R. Discussion Papers.
  7. Artis, M. J., 1987. "The European monetary system: An evaluation," Journal of Policy Modeling, Elsevier, vol. 9(1), pages 175-198.
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