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

  • Barry Eichengreen.

This paper examines 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 flexibility and nominal exchange rate variability, and between nominal and real exchange rate variability. But policies 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 without a credible commitment to a stable intervention rule.The paper then considers four potential explanations for the collapse of the fixed rate regime of 1926-3l: failure to play by the `rules of the game'; inadequate international economic leadership by the United States; inadequate cooperation among the leading Gold Standard countries; and structural features of a system in which reserves comprised both gold and foreign exchange. It concludes by assessing the role of the international monetary system in the Great Depression.

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Paper provided by University of California at Berkeley in its series Economics Working Papers with number 89-118.

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Date of creation: 01 Aug 1989
Date of revision:
Handle: RePEc:ucb:calbwp:89-118
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  1. Rogoff, Kenneth, 1985. "Can exchange rate predictability be achieved without monetary convergence? : Evidence from the EMS," European Economic Review, Elsevier, vol. 28(1-2), pages 93-115.
  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. Barry Eichengreen, 1988. "Did International Economic Forces Cause The Great Depression?," Contemporary Economic Policy, Western Economic Association International, vol. 6(2), pages 90-114, 04.
  4. 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.
  5. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
  6. 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.
  7. Artis, M. J., 1987. "The European monetary system: An evaluation," Journal of Policy Modeling, Elsevier, vol. 9(1), pages 175-198.
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