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Did France Cause the Great Depression?

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  • Douglas A. Irwin

Abstract

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.

Suggested Citation

  • Douglas A. Irwin, 2010. "Did France Cause the Great Depression?," NBER Working Papers 16350, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16350 Note: DAE IFM ME
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    References listed on IDEAS

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    1. Evans, Martin & Wachtel, Paul, 1993. "Were price changes during the Great Depression anticipated? : Evidence from nominal interest rates," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 3-34, August.
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    Cited by:

    1. Bordo, Michael D., 2012. "Could the United States have had a better central bank? An historical counterfactual speculation," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 597-607.
    2. Richhild Moessner & William A. Allen, 2011. "Las crisis bancarias y el sistema monetario internacional en la Gran Depresión y en la actualidad," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 13(25), pages 43-87, July-Dece.
    3. Jordà, Òscar & Schularick, Moritz & Taylor, Alan M., 2015. "Betting the house," Journal of International Economics, Elsevier, vol. 96(S1), pages 2-18.
      • Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2014. "Betting the House," NBER Chapters,in: NBER International Seminar on Macroeconomics 2014, pages 2-18 National Bureau of Economic Research, Inc.
    4. Nicholas Crafts, 2014. "What Does the 1930s' Experience Tell Us about the Future of the Eurozone?," Journal of Common Market Studies, Wiley Blackwell, vol. 52(4), pages 713-727, July.
    5. Fratianni, Michele & Giri, Federico, 2017. "The tale of two great crises," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 5-31.
    6. 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.
    7. Ivo Maes, 2012. "On the origins of the Triffin dilemma: Empirical business cycle analysis and imperfect competition theory," Working Paper Research 240, National Bank of Belgium.
    8. Nicholas Crafts, 2013. "Long-Term Growth in Europe: What Difference does the Crisis Make?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 224(1), pages 14-28, May.
    9. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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