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Relaxing the External Constraint: Europe in the 1930s

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  • Barry Eichengreen

Abstract

This paper documents the effects of exchange rates and the external constraint during the interwar years. In the absence of international policy coordination, exchange rate depreciation is shown to have been a necessary precondition for the adoption of policies promoting recovery from the Great Depression. But currency depreciation was not without costs. It increased the variability of nominal exchange rates and rendered them increasingly difficult to predict. Increased variability and uncertainty about nominal exchange rates carried over to short-term changes in real exchange rates as well. Thus, exchange rate variability appears to have introduced additional noise into the operation of the price mechanism.

Suggested Citation

  • Barry Eichengreen, 1990. "Relaxing the External Constraint: Europe in the 1930s," NBER Working Papers 3410, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3410
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    References listed on IDEAS

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    1. Frankel, Jeffrey A., 1988. "Obstacles to International Macroeconomic Policy Coordination," Journal of Public Policy, Cambridge University Press, vol. 8(3-4), pages 353-374, July.
    2. Eichengreen, Barry, 1989. "The Comparative Performance of Fixed and Flexible Exchange Rate Regimes: Interwar Evidence," CEPR Discussion Papers 349, C.E.P.R. Discussion Papers.
    3. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    4. Eichengreen, Barry, 1989. "The Comparative Performance of Fixed Flexible Exchange Rate Regimes: Interwar Evidence," Department of Economics, Working Paper Series qt2kn4z93w, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Donal J. Donovan, 1981. "Real Responses Associated with Exchange Rate Action in Selected Upper Credit Tranche Stabilization Programs (Résultats liés à une modification du taux de change dans le cadre de programmes de stabil," IMF Staff Papers, Palgrave Macmillan, vol. 28(4), pages 698-727, December.
    6. Ben Bemanke & Harold James, 1991. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison," NBER Chapters, in: Financial Markets and Financial Crises, pages 33-68, National Bureau of Economic Research, Inc.
    7. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
    8. Kamin, S.B., 1988. "Devaluation, External Balance, And Macroeconomic Performance: A Look At The Numbers," Princeton Studies in International Economics 62, International Economics Section, Departement of Economics Princeton University,.
    9. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
    10. James D. Hamilton, 1988. "Role Of The International Gold Standard In Propagating The Great Depression," Contemporary Economic Policy, Western Economic Association International, vol. 6(2), pages 67-89, April.
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    Cited by:

    1. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Economic Journal, Royal Economic Society, vol. 104(425), pages 813-827, July.
    2. Sebastian Edwards & Julio Santaella, 1993. "Devaluation Controversies in the Developing Countries: Lessons from the Bretton Woods Era," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 405-460, National Bureau of Economic Research, Inc.
    3. Jeff Frankel, Steve Phillips, and Menzie Chinn., 1992. "Financial and Currency Integration in the European Monetary System: The Statistical Record," Center for International and Development Economics Research (CIDER) Working Papers C92-005, University of California at Berkeley.

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