Hostname: page-component-586b7cd67f-rdxmf Total loading time: 0 Render date: 2024-11-24T04:23:22.494Z Has data issue: false hasContentIssue false
  • English
  • Français

Gold sterilization and the recession of 1937–19381

Published online by Cambridge University Press:  31 October 2012

Douglas A. Irwin
Douglas A. Irwin*
Affiliation:
Dartmouth College and NBER
*
[email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The recession of 1937–8 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 article 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.

Keywords

sterilizationrecession of 1937–8Federal Reservereserve requirements

JEL classification

E5: Monetary Policy, Central Banking, and the Supply of Money and Credit N13: Europe: Pre-1913 E63: Comparative or Joint Analysis of Fiscal and Monetary Policy • Stabilization • Treasury Policy E4: Money and Interest Rates
Type
The past mirror: notes, surveys, debates
Information
Financial History Review , Volume 19 , Issue 3 , December 2012 , pp. 249 - 267
Copyright
Copyright © European Association for Banking and Financial History e.V. 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

1

I wish to thank Tim Guinnane, seminar participants at Yale, Dartmouth and Wesleyan, and two anonymous referees for their helpful comments.

References

REFERENCES

Beckworth, D. and Hendrickson, J. (2011). Great spending crashes. Unpublished working paper, Texas State University.Google Scholar
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (1943). Banking and Monetary Statistics. Washington, DC: GPO.Google Scholar
Bordo, M. D., Choudhri, E. U. and Schwartz, A. J. (1995). Could stable money have averted the Great Contraction?. Economic Inquiry, 33, pp. 484–505.Google Scholar
Bordo, M. D. and James, H. (2010). The Great Depression analogy. Financial History Review, 17, pp. 127–40.Google Scholar
Brown, E. C. (1956). Fiscal policy in the 'thirties: a reappraisal. American Economic Review, 46, pp. 857–79.Google Scholar
Cagan, P. (1965). Determinants and Effects of Changes in the Stock of Money, 1875–1960. New York: Columbia University Press.Google Scholar
Calomiris, C. W., Mason, J. and Wheelock, D. (2011). Did doubling reserve requirements cause the recession of 1937–1938? A microeconomic approach. NBER Working Paper no. 16688, January.Google Scholar
Cargill, T. F. and Mayer, T. (2006). The effect of changes in reserve requirements during the 1930s: the evidence from nonmember banks. Journal of Economic History, 66, pp. 417–32.Google Scholar
Cole, H. and Ohanian, L. (1999). The Great Depression in the United States from a neoclassical perspective. Federal Reserve Bank of Minneapolis Quarterly Review, 23, pp. 25–31.Google Scholar
Eggertsson, G. B. (2008). Great expectations and the end of the Depression. American Economic Review, 98, pp. 1476–1516.CrossRefGoogle Scholar
Eggertsson, G. B. and Pugsley, B. (2006). The mistake of 1937: a general equilibrium analysis. Monetary and Economic Studies, 24, pp. 151–90.Google Scholar
Eichengreen, B. (2012). Economic history and economic policy. Journal of Economic History, 72, pp. 289–307.Google Scholar
Friedman, M, and Schwartz, A. J. (1963). A Monetary History of the United States, 1867–1960. Princeton: Princeton University Press.Google Scholar
Friedman, M. and Schwartz, A. J. (1970). Monetary Statistics of the United States: Estimates, Sources, Methods. New York: Columbia University Press.Google Scholar
Gordon, R. J. (ed.) (1986). The American Business Cycle: Continuity and Change. Chicago: University of Chicago Press for the NBER.Google Scholar
Hanes, C. (2006). The liquidity trap and US interest rates in the 1930s. Journal of Money, Credit, and Banking, 38, pp. 163–94.Google Scholar
Hausman, J. (2011). What was bad for GM was bad for America: the automobile industry and the 1937-38 recession. Working paper, University of California at Berkeley.Google Scholar
Johnson, G. G. (1939). The Treasury and Monetary Policy, 1933–1938. Cambridge, MA: Harvard University Press.Google Scholar
Mccallum, B.T. (1990). Could a monetary base rule have prevented the Great Depression? Journal of Monetary Economics, 26, pp. 3–26.Google Scholar
Meltzer, A. H. (2003). A History of the Federal Reserve, vol. 1: 1913–1951. Chicago: University of Chicago Press.Google Scholar
Mishkin, F. (1995). Symposium on the monetary transmission mechanism. Journal of Economic Perspectives, 9, pp. 3–10.Google Scholar
Peppers, L. (1973). Full-employment surplus analysis and structural change: the 1930s. Explorations in Economic History, 10, pp. 197–210.Google Scholar
Romer, C. D. (1988). World War I and the postwar Depression: a reinterpretation based on alternative estimates of GNP. Journal of Monetary Economics, 22, pp. 91–115.CrossRefGoogle Scholar
Romer, C. D. (1992). What ended the Great Depression? Journal of Economic History, 52, pp. 757–84.Google Scholar
Romer, C. D. (1994). Remeasuring business cycles. Journal of Economic History, 54, pp. 573–609.Google Scholar
Romer, C. D. (2009). The lessons of 1937. The Economist, June 18.Google Scholar
Romer, C. D. and Romer, D. H. (1989). Does monetary policy matter? A new test in the spirit of Friedman and Schwartz. NBER Macroeconomics Annual, 4, pp. 121–70.Google Scholar
Stauffer, R. F. (2002). Another perspective on the reserve requirement increments of 1936 and 1937. Journal of Post Keynesian Economics, 25, pp. 161–79.CrossRefGoogle Scholar
Telser, L. G. (2001–2). Higher member bank reserve ratios in 1936 and 1937 did not cause the relapse into depression. Journal of Post Keynesian Economics, 24, pp. 205–16.Google Scholar
Temin, P. and WIGMORE, B. (1990). End to one big deflation. Explorations in Economic History, 27, pp. 483–502.CrossRefGoogle Scholar
Urban, S. and Straumann, T. (2012). Still tied by golden fetters: the global response to the US recession of 1937–1938. Financial History Review, 19, pp. 21–48.CrossRefGoogle Scholar
Velde, F. R. (2009). The recession of 1937 – a cautionary tale. Federal Reserve Bank of Chicago Economic Perspectives, 33, pp. 16–37.Google Scholar