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Did France Cause the Great Depression?

  • Douglas A. Irwin

The gold standard was a key factor behind the Great Depression, but why did it produce such an intense worldwide deflation and associated economic contraction? While the tightening of U.S. monetary policy in 1928 is often blamed for having initiated the downturn, France increased its share of world gold reserves from 7 percent to 27 percent between 1927 and 1932 and effectively sterilized most of this accumulation. This "gold hoarding" created an artificial shortage of reserves and put other countries under enormous deflationary pressure. Counterfactual simulations indicate that world prices would have increased slightly between 1929 and 1933, instead of declining calamitously, if the historical relationship between world gold reserves and world prices had continued. The results indicate that France was somewhat more to blame than the United States for the worldwide deflation of 1929-33. The deflation could have been avoided if central banks had simply maintained their 1928 cover ratios.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16350.

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Date of creation: Sep 2010
Date of revision:
Publication status: published as “ Le France a-t- elle Causé la Grande Dép ression? ” Revue Française d’économ ie 25 (April 2 01 1) : 3-10 .
Handle: RePEc:nbr:nberwo:16350
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  1. Mundell, Robert A., 1999. "A Reconsideration of the Twentieth Century," Nobel Prize in Economics documents 1999-5, Nobel Prize Committee.
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  6. Accominotti, Olivier, 2009. "The sterling trap: foreign reserves management at the Bank of France, 1928–1936," European Review of Economic History, Cambridge University Press, vol. 13(03), pages 349-376, December.
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