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International Monetary Instability Between the Wars: Structural Flaws or Misguided Policies?

  • Barry Eichengreen

This paper reassesses the history of the international monetary system between the wars. It confirms the generality of several widely held interpretations of recent experience with floating exchange rates. There is a positive association between nominal exchange rate variability and real exchange rate variability. But policies of intervention which reduce nominal exchange rate variability do not guarantee a proportionate reduction in nominal exchange rate risk or in real exchange rate variability and unpredictability. A credible commitment to a stable intervention rule is needed to deliver these benefits. The paper then goes on to consider four potential explanations for the collapse of the fixed rate regime that prevailed from 1926 through 1931: (1) failure to play by the "rules of the game", (2) inadequate international economic leadership by the United States, (3) inadequate cooperation among the leading gold standard countries, and (4) structural features of a system in which reserves were comprised of both gold and foreign exchange. It concludes by assessing the role of the international monetary system in the Great Depression.

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File URL: http://www.nber.org/papers/w3124.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3124.

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Date of creation: Jan 1991
Date of revision:
Publication status: published as The Evolution of the International Monetary System, edited by Yoshio Suzuki , Junichi Miyake, and Mitsuaki Okabe, pp. 71-116. Tokyo: University of Tokyo Press, 1990.
Handle: RePEc:nbr:nberwo:3124
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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Web page: http://www.nber.org
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  1. Marianne Baxter & Alan C. Stockman, 1988. "Business Cycles and the Exchange Rate System: Some International Evidence," NBER Working Papers 2689, National Bureau of Economic Research, Inc.
  2. Eichengreen, Barry, 1987. "Real Exchange Rate Behavior Under Alternative International Monetary Regimes: Interwar Evidence," Department of Economics, Working Paper Series qt0nh766xh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
  4. Barry Eichengreen., 1987. "Did International Economic Forces Cause the Great Depression?," Economics Working Papers 8751, University of California at Berkeley.
  5. Artis, M. J., 1987. "The European monetary system: An evaluation," Journal of Policy Modeling, Elsevier, vol. 9(1), pages 175-198.
  6. Kenneth S. Rogoff, 1984. "Can exchange rate predictability be achieved without monetary convergence? : evidence from the EMS," International Finance Discussion Papers 245, Board of Governors of the Federal Reserve System (U.S.).
  7. Nouriel Roubini, 1988. "Offset and Sterilization Under Fixed Exchange Rates With An Optimizing Central Bank," NBER Working Papers 2777, National Bureau of Economic Research, Inc.
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