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Gold Sterilization and the Recession of 1937-38


  • Douglas A. Irwin


The Recession of 1937-38 is often cited as illustrating the dangers of withdrawing fiscal and monetary stimulus too early in a weak recovery. Yet our understanding of this severe downturn is incomplete: existing studies find that changes in fiscal policy were small in comparison to the magnitude of the downturn and that higher reserve requirements were not binding on banks. This paper focuses on a neglected change in monetary policy, the sterilization of gold inflows during 1937, and finds that it exerted a powerful contractionary force during this period. The transmission of this monetary shock to the real economy appears to have worked through lower asset (equity) prices and higher interest rates.

Suggested Citation

  • Douglas A. Irwin, 2011. "Gold Sterilization and the Recession of 1937-38," NBER Working Papers 17595, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17595
    Note: DAE ME

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    References listed on IDEAS

    1. Gauti B. Eggertsson, 2008. "Great Expectations and the End of the Depression," American Economic Review, American Economic Association, vol. 98(4), pages 1476-1516, September.
    2. Gauti B. Eggertsson & Benjamin Pugsley, 2006. "The Mistake of 1937: A General Equilibrium Analysis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(S1), pages 151-190, December.
    3. Calomiris, Charles W. & Mason, Joseph R. & Wheelock, David C., 2011. "Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach," Working Papers 11-03, University of Pennsylvania, Wharton School, Weiss Center.
    4. Bordo, Michael D & Choudhri, Ehsan U & Schwartz, Anna J, 1995. "Could Stable Money Have Averted the Great Contraction?," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 484-505, July.
    5. François R. Velde, 2009. "The recession of 1937 - a cautionary tale," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 16-37.
    6. Hanes, Christopher, 2006. "The Liquidity Trap and U.S. Interest Rates in the 1930s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 163-194, February.
    7. Milton Friedman & Anna Jacobson Schwartz, 1970. "Introduction to "Monetary Statistics of the United States: Estimates, Sources, Methods"," NBER Chapters,in: Monetary Statistics of the United States: Estimates, Sources, Methods, pages 1-85 National Bureau of Economic Research, Inc.
    8. Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters,in: The American Business Cycle: Continuity and Change, pages -15 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Clark JOHNSON, 2016. "Did Keynes Make His Case?," Journal of Economics Library, KSP Journals, vol. 3(2), pages 214-225, June.
    2. David Laidler, 2013. "Reassessing the Thesis of the Monetary History," University of Western Ontario, Economic Policy Research Institute Working Papers 20135, University of Western Ontario, Economic Policy Research Institute.

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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