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Relaxing the External Constraint: Europe in the 1930s

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  • Eichengreen, Barry

Abstract

This paper documents the effects of exchange rates and the external constraint during the interwar years. In the absence of international policy coordination, exchange rate depreciation is shown to have been a necessary precondition for the adoption of policies promoting recovery from the Great Depression. But currency depreciation was not without costs. It increased the variability of nominal exchange rates and rendered them increasingly difficult to predict. Increased variability and uncertainty about nominal exchange rates carried over to short-term changes in real exchange rates as well. Thus, exchange rate variability appears to have introduced additional noise into the operation of the price mechanism.

Suggested Citation

  • Eichengreen, Barry, 1990. "Relaxing the External Constraint: Europe in the 1930s," CEPR Discussion Papers 452, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:452
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    Cited by:

    1. Sebastian Edwards & Julio Santaella, 1993. "Devaluation Controversies in the Developing Countries: Lessons from the Bretton Woods Era," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 405-460, National Bureau of Economic Research, Inc.
    2. Jeff Frankel, Steve Phillips, and Menzie Chinn., 1992. "Financial and Currency Integration in the European Monetary System: The Statistical Record," Center for International and Development Economics Research (CIDER) Working Papers C92-005, University of California at Berkeley.
    3. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Economic Journal, Royal Economic Society, vol. 104(425), pages 813-827, July.

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