Hostname: page-component-669899f699-vbsjw Total loading time: 0 Render date: 2025-04-25T13:52:44.234Z Has data issue: false hasContentIssue false
  • English
  • Français

The Gold Standard and the international dimension of the Great Depression

Published online by Cambridge University Press:  07 November 2023

Luca Pensieroso  and
Romain Restout
Luca Pensieroso
Affiliation:
IRES/LIDAM, UCLouvain, Louvain-la-Neuve, Belgium
Romain Restout*
Affiliation:
Université de Lorraine and BETA, Nancy, France
*
Corresponding author: Romain Restout; Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Was the Gold Standard a major determinant of the onset and protracted character of the Great Depression of the 1930s in the USA and worldwide? In this paper, we model the “Gold Standard hypothesis” in an open-economy, dynamic general equilibrium framework. We show that encompassing the international and monetary dimensions of the Great Depression is important to understand the turmoil of the 1930s. In particular, the Gold Standard turns out to be a strong transmission mechanism of monetary shocks from the USA to the rest of the world. Our results also suggest that the waves of successive nominal exchange rate devaluations coupled with the monetary policy implemented in the USA might not have enhanced the recovery.

Keywords

Great DepressionGold Standardopen macroeconomicsdynamic general equilibrium
Type
Articles
Information
Macroeconomic Dynamics , Volume 28 , Issue 6 , September 2024 , pp. 1346 - 1370
Copyright
© The Author(s), 2023. Published by Cambridge University Press

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.)

Article purchase

Temporarily unavailable

Footnotes

†

Paper presented at the EEA 2017 meeting in Lisbon, at the CEF 2017 conference in New York, at the ASSET 2016 conference in Thessaloniki, at the Workshop in Macroeconomics in Ghent in 2017 and at the 2015 Macro-Dynamics Workshop in Bilbao. We thank participants at these meetings, as well as participants in seminars at the Universities of Louvain and Strasbourg for their feedback. Yao Chen, Eric Monnet, Charlotte de Montpellier, Robert Kollmann, Giulio Nicoletti, Henri Sneessens and Felix Ward made interesting remarks on an earlier version. The usual disclaimers apply.

References

Aguilar Garcìa, P. and Pensieroso, L. (2022) Learning the Hard Way: Expectations and the Great Depression. Discussion Paper IRES 2022/04, LIDAM.Google Scholar
Albers, T. N. H. (2020) Currency devaluations and beggar-my-neighbour penalties: Evidence from the 1930s. Economic History Review 73(1), 233–257.10.1111/ehr.12874CrossRefGoogle Scholar
Amaral, P. S. and MacGee, J. C. (2002) The Great Depression in Canada and the United States: A neoclassical perspective. Review of Economic Dynamics 5(1), 45–72.10.1006/redy.2001.0141CrossRefGoogle Scholar
Backus, D. K., Kehoe, P. J. and Kydland, F. E. (1994) Dynamics of the trade balance and the terms of trade: The J-curve? American Economic Review 84(1), 84–103.Google Scholar
Barro, R. J. (1979) Money and the price level under the gold standard. Economic Journal 89(353), 13–33.10.2307/2231404CrossRefGoogle Scholar
Beaudry, P. and Portier, F. (2002) The French depression in the 1930s. Review of Economic Dynamics 5(1), 73–99.10.1006/redy.2001.0143CrossRefGoogle Scholar
Bernanke, B. S. (1995) The macroeconomics of the Great Depression: A comparative approach. Journal of Money, Credit and Banking 27(1), 1–28.10.2307/2077848CrossRefGoogle Scholar
Bernanke, B. S. (2000) Essays on the Great Depression. Princeton, NJ: Princeton University Press.10.1515/9781400820276CrossRefGoogle Scholar
Bernanke, B. S. and Carey, K. (1996) Nominal wage stickiness and aggregate supply in the great depression. Quarterly Journal of Economics 111(3), 853–883.10.2307/2946674CrossRefGoogle Scholar
Bernanke, B. S., Carey, K., Gertler, M. and Gilchrist, S. (1996) The financial accelerator and the flight to quality. The Review of Economics and Statistics 78(1), 1–15.10.2307/2109844CrossRefGoogle Scholar
Bernanke, B. S. and James, H. (1991) The Gold Standard, deflation and financial crisis in the Great Depression: An international comparison. In: Bernanke, B. S. and James, H.. (ed.), Financial Markets and Financial Crises. Chicago: University of Chicago Press.Google Scholar
Blanchard, O. and Galì, J. (2007) Real wage rigidities and the new Keynesian model. Journal of Money, Credit and Banking 39(1), 35–65.10.1111/j.1538-4616.2007.00015.xCrossRefGoogle Scholar
Boissay, F., Collard, F. and Smets, F. (2018) Booms and banking crises. Journal of Political Economy 124(2), 489–538.10.1086/685475CrossRefGoogle Scholar
Bordo, M., Choudhri, E. and Schwartz, A. (2002) Was expansionary monetary policy feasible during the great contraction? An examination of the Gold Standard constraint. Explorations in Economic History 39(1), 1–28.10.1006/exeh.2001.0778CrossRefGoogle Scholar
Bordo, M. D., Erceg, C. J. and Evans, C. L. (2000) Money, sticky wages and the Great Depression. American Economic Review 90(5), 1447–1463.10.1257/aer.90.5.1447CrossRefGoogle Scholar
Chari, V. V., Kehoe, P. J. and McGrattan, E. R. (2002) Can sticky price models generate volatile and persistent real exchange rates? Review of Economic Studies 69, 533– 563.10.1111/1467-937X.00216CrossRefGoogle Scholar
Chen, Y. and Ward, F. (2019) When do fixed exchange rate work? Evidence from the Gold Standard. Journal of International Economics 116, 158–172.10.1016/j.jinteco.2018.11.003CrossRefGoogle Scholar
Choudhri, E. U. and Kochin, L. A. (1980) The exchange rate and the international transmission of business cycle disturbances: Some evidence from the Great Depression. Journal of Money, Credit and Banking 12(4), 565–574.10.2307/1991882CrossRefGoogle Scholar
Christiano, L., Motto, R. and Rostagno, M. (2003) The Great Depression and the Friedman-Schwartz hypothesis. Journal of Money, Credit and Banking 35(6), 1119–1197.10.1353/mcb.2004.0023CrossRefGoogle Scholar
Cole, H. L. and Ohanian, L. E. (1999) The Great Depression in the United States from a Neoclassical Perspective. Federal Reserve of Minneapolis Quarterly Review 23, 2–24.Google Scholar
Cole, H. L. and Ohanian, L. E. (2002) The great UK depression: A puzzle and a possible resolution. Review of Economic Dynamics 5(1), 19–44.10.1006/redy.2001.0140CrossRefGoogle Scholar
Cole, H. L. and Ohanian, L. E. (2004) New deal policies and the persistence of the Great Depression: A general equilibrium analysis. Journal of Political Economy 112(4), 779–816.10.1086/421169CrossRefGoogle Scholar
Cole, H. L., Ohanian, L. E. and Leung, R. (2005) Deflation and the International Great Depression: A Productivity Puzzle. Working Paper 11237, National Bureau of Economic Research.10.3386/w11237CrossRefGoogle Scholar
Corsetti, G., Dedola, L. and Leduc, S. (2008) International risk sharing and the transmission of productivity shocks. Review of Economic Studies 75(2), 443–473.10.1111/j.1467-937X.2008.00475.xCrossRefGoogle Scholar
Crucini, M. and Kahn, J. (1996) Tariffs and aggregate economic activity: Lessons from the Great Depression. Journal of Monetary Economics 38(3), 427–467.10.1016/S0304-3932(96)01298-6CrossRefGoogle Scholar
Crucini, M. and Kahn, J. (2003) Tariffs and the Great Depression Revisited. Staff Reports 172, Federal Reserve Bank of New York.10.2139/ssrn.892580CrossRefGoogle Scholar
De Vroey, M. and Pensieroso, L. (2006) Real business cycle theory and the great depression: The abandonement of the abstentionist viewpoint. Contributions to Macroeconomics 6(1), article–13.Google Scholar
Diercks, A. M., Rawls, J. and Sims, E. (2020) Bury the Gold Standard? A Quantitative Exploration. Working Paper 28015, National Bureau of Economic Research.10.3386/w28015CrossRefGoogle Scholar
Eggertsson, G. B. (2008) Great expectations and the end of the depression. American Economic Review 98(4), 1476–1516.10.1257/aer.98.4.1476CrossRefGoogle Scholar
Eichengreen, B. (1992) Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. Oxford: Oxford University Press.Google Scholar
Eichengreen, B. and Irwin, D. A. (2010) The slide to protectionism in the Great Depression: Who succumbed and why? Journal of Economic History 70(4), 871–897.10.1017/S0022050710000756CrossRefGoogle Scholar
Eichengreen, B. and Sachs, J. (1985) Exchange rates and economic recovery in the 1930s. Journal of Economic History 45(4), 925–946.10.1017/S0022050700035178CrossRefGoogle Scholar
Eichengreen, B. and Temin, P. (2000) The Gold Standard and the Great Depression. Contemporary European History 9(2), 183–207.10.1017/S0960777300002010CrossRefGoogle Scholar
Eichengreen, B. and Temin, P. (2010) Fetters of gold and paper. Oxford Review of Economic Policy 26(3), 370–384.10.1093/oxrep/grq018CrossRefGoogle Scholar
Fackler, J. S. and Parker, R. E. (2005) Was debt deflation operative during the Great Depression? Economic Inquiry 43(1), 67–78.10.1093/ei/cbi006CrossRefGoogle Scholar
Fagan, G., Lothian, J. R. and McNelis, P. D. (2013) Was the Gold Standard really destabilizing? Journal of Applied Econometrics 28(2), 231–249.10.1002/jae.2262CrossRefGoogle Scholar
Federal Reserve Board. (1930) Federal Reserve Bulletin.Google Scholar
Field, A. J. (2006) Technological change and US productivity growth in the interwar years. The Journal of Economic History 66(1), 203–236.10.1017/S0022050706000088CrossRefGoogle Scholar
Fisher, I. (1933) The debt-deflation theory of Great Depressions. Econometrica 1(4), 1.10.2307/1907327CrossRefGoogle Scholar
Fisher, J. D. M. and Hornstein, A. (2002) The role of real wages, productivity, and fiscal policy in Germany’s Great Depression 1928-37. Review of Economic Dynamics 5(1), 100–127.10.1006/redy.2001.0142CrossRefGoogle Scholar
Fratianni, M. and Spinelli, F. (2005) A Monetary History of Italy. Cambridge: Cambridge University Press.Google Scholar
Friedman, M. and Schwartz, A. J. (1963) A Monetary History of the United States, 1867-1960. Princeton, NJ: Princeton University Press (for NBER).Google Scholar
Hausman, J. K., Rhode, P. W. and Wieland, J. F. (2019) Recovery from the great depression: The farm channel in spring 1933. American Economic Review 109(2), 427–472.10.1257/aer.20170237CrossRefGoogle Scholar
Hsieh, C.-T. and Romer, C. D. (2006) Was the Federal Reserve constrained by the gold standard during the Great Depression? Evidence from the 1932 open market purchase program. The Journal of Economic History 66(1), 140–176.10.1017/S0022050706000064CrossRefGoogle Scholar
Inklaar, R., De Jong, H. and Gouma, R. (2011) Did technology shocks drive the great depression? Explaining cyclical productivity movements in US manufacturing, 1919-1939. The Journal of Economic History 71(4), 827–858.10.1017/S0022050711002166CrossRefGoogle Scholar
Irwin, D. A. (2012) The French gold sink and the great deflation of 1929-32. Cato Papers on Public Policy 2, 1–56.Google Scholar
Irwin, D. A. (2014) Who anticipated the Great Depression? Gustav Cassel versus Keynes and Hayek on the interwar gold standard. Journal of Money, Credit and Banking 46(1), 199–227.10.1111/jmcb.12102CrossRefGoogle Scholar
Jacobson, M. M., Leeper, E. M. and Preston, B. (2019). Recovery of 1933. Working Paper 25629, National Bureau of Economic Research.10.3386/w25629CrossRefGoogle Scholar
James, H. (1992) Financial flows across frontiers during the interwar depression. Economic History Review 45(3), 594–613.10.2307/2598054CrossRefGoogle Scholar
Karau, S. (2020) Buried in the Vaults of Central Banks – Monetary Gold Hoarding and the Slide into the Great Depression. Discussion Paper 63/2020, Deutsche Bundesbank.10.2139/ssrn.3767290CrossRefGoogle Scholar
Kehoe, P. J., Midrigan, V. and Pastorino, E. (2018) Evolution of modern business cycle models: Accounting for the great recession. Journal of Economic Perspectives 32(3), 141–166.10.1257/jep.32.3.141CrossRefGoogle Scholar
Kehoe, T. J. and Prescott, E. C. (2007) Great Depressions of the Twentieth Century. Federal Reserve Bank of Minneapolis.10.21034/mo.9780978936006CrossRefGoogle Scholar
Kehoe, T. J. and Prescott, E. C. (2008). Using the General Equilibrium Growth Model to Study Great Depressions: A Reply to Temin. Research Department Staff Report 418, Federal Reserve Bank of Minneapolis.10.21034/sr.418CrossRefGoogle Scholar
Keynes, J. M. (1936) The General Theory of Employment, Interest, and Money. London: Macmillan.Google Scholar
Kindleberger, C. P. (1973) The World in Depression. Berkley, CA: University of California Press.Google Scholar
Kollmann, R., Pataracchia, B., Raciborski, R., Ratto, M., Roeger, W. and Vogel, L. (2016) The post-crisis slump in the Euro Area and the US: Evidence from an estimated three-region DSGE model. European Economic Review 88, 21–41.10.1016/j.euroecorev.2016.03.003CrossRefGoogle Scholar
League of Nations. (1939) Statistical Yearbook 1938/39.Google Scholar
League of Nations. (1941) Statistical Yearbook 1940/41.Google Scholar
Lucas, R. E. (1980) Methods and problems in business cycle theory. In: Studies in Business Cycle Theory, pp. 271–296. Cambridge, MA: MIT Press.Google Scholar
Maddison, A. (2011) Historical Statistics of the World Economy: 1-2008 AD. http://www.ggdc.net/MADDISON/oriindex.htm 10.1093/oso/9780199227211.001.0001CrossRefGoogle Scholar
Mishkin, F. (1978) The household balance sheet and the Great Depression. The Journal of Economic History 38(04), 918–937.10.1017/S0022050700087167CrossRefGoogle Scholar
Ohanian, L. E. (2002) Why did productivity fall so much during the Great Depression? Federal Reserve Bank of Minneapolis Quarterly Review 26, 12–17.Google Scholar
Pensieroso, L. (2007) Real business cycle models of the Great Depression: A critical survey. Journal of Economic Surveys 21(1), 110–142.10.1111/j.1467-6419.2007.00500.xCrossRefGoogle Scholar
Pensieroso, L. (2011a) The Great Depression in Belgium from a neoclassical perspective. Review of Economic Dynamics 14(2), 389–402.10.1016/j.red.2010.10.004CrossRefGoogle Scholar
Pensieroso, L. (2011b) Real business cycle models of the Great Depression. Cliometrica 5(2), 101–119.10.1007/s11698-010-0053-0CrossRefGoogle Scholar
Perri, F. and Quadrini, V. (2002) The Great Depression in Italy: Trade restrictions and real wage rigidities. Review of Economic Dynamics 5(1), 128–151.10.1006/redy.2001.0144CrossRefGoogle Scholar
Prescott, E. C. (1986) Theory ahead of business-cycle measurement. In: Carnegie-Rochester Conference Series on Public Policy, vol. 25. Amsterdam: Elsevier, pp. 11–44.Google Scholar
Prescott, E. C. (1999) Some observations on the Great Depression. Federal Reserve Bank of Minneapolis Quarterly Review 23(1), 25–31.Google Scholar
Ritschl, A. (2002) The German Business Cycle, 1924-1934: Domestic Activity, Foreign Debt, and Reparations from the Dawes Plan to the Debt Default. Berlin: Akademie-Verlag.Google Scholar
Romer, C. (1992) What ended the Great Depression? Journal of Economic History 52(4), 757–784.10.1017/S002205070001189XCrossRefGoogle Scholar
Romer, C. (1993) The nation in depression. Journal of Economic Perspectives 7(2), 19–39.10.1257/jep.7.2.19CrossRefGoogle Scholar
Smets, F. and Wouters, R. (2003) An estimated dynamic stochastic general equilibrium model of the Euro area. Journal of the European Economic Association 1(5), 1123–1175.10.1162/154247603770383415CrossRefGoogle Scholar
Taylor, A. M. (1996) International Capital Mobility in History: The Saving-Investment Relationship. Working Paper 5743, National Bureau of Economic Research.10.3386/w5743CrossRefGoogle Scholar
Temin, P. (1976) Did Monetary Forces Cause the Great Depression? New York: Norton.Google Scholar
Temin, P. (1989) Lessons from the Great Depression. Cambridge, MA: MIT Press.Google Scholar
Temin, P. (1993) Transmission of the Great Depression. Journal of Economic Perspectives 7, 87–102.10.1257/jep.7.2.87CrossRefGoogle Scholar
Temin, P., Kehoe, T. J. and Edward, C. (2008) Real business cycle views of the Great Depression and recent events: A review of Timothy J. Kehoe and Edward C. Prescott’s Great Depressions of the twentieth century. Journal of Economic Literature 46, 669–684.10.1257/jel.46.3.669CrossRefGoogle Scholar
Uribe, M. and Schmitt-Grohé, S. (2017) Open Economy Macroeconomics. Princeton, NJ: Princeton University Press.Google Scholar
Watanabe, S. (2016) Technology shocks and the great depression. The Journal of Economic History 76(3), 909–933.10.1017/S0022050716000772CrossRefGoogle Scholar
Weder, M. (2006) The role of preference shocks and capital utilization in the Great Depression. International Economic Review 47, 1247–1268.10.1111/j.1468-2354.2006.00412.xCrossRefGoogle Scholar