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Exchange Rates and Economic Recovery in the 1930s

  • Barry J. Eichengreen
  • Jeffrey Sachs

Currency depreciation in the 1930s is almost universally dismissed or condemned. It is credited with providing little if any stimulus for economic recovery in the depreciating countries and blamed for transmitting harmful beggar-thy-neighbor impulses to the rest of the world econonv. In this paper we argue for a radically different interpretation of exchange-rate policy in the 1930s . We document first that currency depreciation was beneficial for the initiating countries. It worked through both the standard supply- and demand-side channels suggested by modern variants of the Keynesian model. We show next that there can in fact be no presumption that currency depreciation inthe 1930s was beggar-thy-neighbor policy. Rather, an empirical analysis of the historical record is needed to determine whether the impact on other countries was favorable or unfavorable. We conclude provisionally on the basis of this analysis that the foreign repercussions of individual devaluations were in fact negative -that the depreciations considered were beggar-thy-neighbor. As we point out, however, this finding does not support the conclusion that competitive devaluations taken by a group of countries were without benefit for the system as a whole. We argue to the contrary that similar policies, had they been even more widely adopted, would have hastened recovery from the Great Depression.

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File URL: http://www.nber.org/papers/w1498.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1498.

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Date of creation: Nov 1984
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Publication status: published as Eichengreen, Barry and Jeffrey Sachs. "Exchange Rates and Economic Recovery in the 1930s," Journal of Economic History, Vol. XLV, No. 4, (December 1 985), pp. 925-946.*Reprinted in Depressions & New Deal, Burwood, Stephen, ed., Garland, 1989.
Handle: RePEc:nbr:nberwo:1498
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Eichengreen, Barry J., 1981. "A dynamic model of tariffs, output and employment under flexible exchange rates," Journal of International Economics, Elsevier, vol. 11(3), pages 341-359, August.
  2. Eichengreen, Barry, 1984. "Central bank cooperation under the interwar gold standard," Explorations in Economic History, Elsevier, vol. 21(1), pages 64-87, January.
  3. Peter Temin, 1971. "The Beginning of the Depression in Germany," Economic History Review, Economic History Society, vol. 24(2), pages 240-248, 05.
  4. Peden, G C, 1980. "Keynes, the Treasury and Unemployment in the Later Nineteen-Thirties," Oxford Economic Papers, Oxford University Press, vol. 32(1), pages 1-18, March.
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