Skip to main content
×
×
Home

To Raise the Golden Anchor? Financial Crises and Uncertainty During the Great Depression

  • J. Peter Ferderer (a1) and David A. Zalewski (a2)
Abstract

This study examines the interplay between financial crises, uncertainty, and economic growth during the interwar period. Comparing the experiences of ten countries, we provide evidence that reductions in the credibility of a country's commitment to the gold standard generated capital flight and higher interest rate volatility. This volatility, in turn, was inversely correlated with economic growth. These results suggest that financial crises helped propagate the Great Depression, in part, by increasing uncertainty.

Copyright
References
Hide All
Alesina, Alberto, and Perotti, Roberto. “Income Distribution, Political Instability, and Investment.” European Economic Review 40 (1996): 1203–28.
Asselain, Jean-Charles, and Plessis, Alain. “Exchange-Rate Policy and Macroeconomic Performance: A Comparison of French and Italian Experiences between the Wars.” In Banking, Currency, and Finance in Europe Between the Wars, edited by Feinstein, Charles H., 187213. New York: Oxford University Press, 1995.
Bernanke, Ben S.Nonmonetary Effects of Financial Crises in the Propagation of the Great Depression.” American Economic Reviews 73, no. 3 (1983): 257–76.
Bernanke, Ben S.The Macroeconomics of the Great Depression: A Comparative Approach.” Journal of Money, Credit, and Banking 27, no. 1 (1995): 128.
Bernanke, Ben S., and James, Harold. “The Gold Standard, Deflation, and Financial Crises in the Great Depression: An International Comparison.” In Financial Markets and Financial Crises, edited by Hubbard, R. Glenn, 3368. Chicago: University of Chicago Press, 1991.
Board of Governors of the Federal Reserve System, Banking and Monetary Statistics, 1914–1941. First Edition, Washington, DC, 1943.
Bollerslev, Tim, and Wooldridge, Jeffrey M.. “Quasi-Maximum Likelihood Estimation and Inference in Dynamic Models with Time-Varying Covariances.” Economic Reviews 11, no. 2 (1992): 143–72.
Bordo, Michael D. “Financial Crises, Banking Crises, Stock Market Crashes and the Money Supply: Some International Evidence, 1870–1933.” In Financial Crises andthe World Banking System, edited by Capie, Forest and Wood, Geoffrey, 190254. New York: St. Martin's Press, 1986.
Brenner, Robin J., Harjes, Richard H., and Kroner, Kenneth F.. “Another Look at Models of the Short-term Interest Rate.” Journal of Financial and Quantitative Analysis 31, no. 1 (03 1996): 85107.
Caballero, Ricardo J.On the Sign of the Investment-Uncertainty Relationship.” American Economic Review 81, no. 1 (03 1991): 279–88.
Calomiris, Charles W.Financial Factors in the Great Depression.” Journal of Economic Perspectives 7, no. 2 (1993): 6186.
Claassen, Emil-Maria. Global Monetary Economics. New York: Oxford University Press, 1997.
Dixit, Avinash K., and Pindyck, Robert S.. Investment Under Uncertainly. Princeton, NJ: Princeton University Press, 1994.
Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. New York: Oxford University Press, 1992.
Eichengreen, Barry, and Sachs, Jeffrey. “Exchange Rates and Economic Recovery in the 1930s.” this JOURNAL 45, no. 4 (1985): 925–46.
Engle, Robert F.Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation.” Econometrica 50 (1982): 9871008.
Epstein, Gerald, and Ferguson, Thomas. “Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal Reserve and the Open Market Operation of 1932.” this JOURNAL 44, no. 4 (1984): 957–83.
Feinstein, Charles H., Temin, Peter, and Toniolo, Gianni. The European Economy Between the Wars. New York: Oxford University Press, 1997.
Ferderer, J. Peter, and Zalewski, David A.. “Uncertainty as a Propagating Force in the Great Depression.” this JOURNAL 54, no. 4 (1994): 825–49.
Fisher, Lawrence. “Determinants of Risk Premiums on Corporate Bonds.” Journal of Political Economy 67 (06 1959): 217–37.
Flood, Robert P. Jr, and Garber, Peter M.. “A Systematic Banking Collapse in a Perfect Foresight World.” NBER Working Paper No. 691, Cambridge, MA, 1981.
Friedman, Milton, and Schwartz, Anna Jacobson. A Monetary History of the United States, 1967–1960. Princeton, NJ: Princeton University Press, 1963.
Gray, Stephen F.Modeling the Conditional Distribution of Interest Rates as a Regime- Switching Process.” Journal of Financial Economics 42, no. 1 (1996): 2762.
Grinols, Earl L., and Turnovsky, Stephen J.. “Risk, the Financial Market, and Macroeconomic Equilibrium.” Journal of Economic Dynamics and Control 17 (1993): 136.
Hallwood, C. Paul, MacDonald, Ronald, and Marsh, Ian W.. “Crash! Expectational Aspects of the Departures of the United Kingdom and the United States from the Inter-War Gold Standard.” Explorations in Economic History 34, no. 2 (1997): 174–94.
Hamilton, James. “The Role of the International Gold Standard in Propagating the Great Depression.” Contemporary Policy Issues 6 (04 1988): 6789.
Hendel, Ian. “Competition Under Financial Distress.” The Journal of Industrial Economics 44, no. 3 (1996): 309–24.
Ho, Thomas, and Stoll, Hans. “Optimal Dealer Pricing Under Transactions and Return Uncertainty.” Journal of Financial Economics 9, (03 1981): 4773.
Hunter, Helen Manning. “The Role of Business Liquidity During the Great Depression and Afterwards: Differences Between Large and Small Firms.” this JOURNAL 42, no. 4 (1982): 883902.
Ingersoll, Jonathan E., and Ross, Stephen A.. “Waiting to Invest: Investment and Uncertainty.” Journal of Business 65 (01 1992): 129.
Jackson, Julian. The Politics of Depression in France, 1932–1936. Cambridge: Cambridge University Press, 1985.
James, Harold. “Financial Flows Across Frontiers During the Interwar Depression.” Economic History Review 45, no. 3 (1992): 594613.
Jones, Robert A., and Ostroy, Joseph M.. “Flexibility and Uncertainty.” Review of Economic Studies 51 (1984): 1332.
Keynes, John Maynard. A Tract on Monetary Reform. London: Macmillan, 1923.
Kindleberger, Charles P.A Financial History of Western Europe. Oxford: Oxford University Press, 1993.
McKinnon, Ronald I.Exchange Rate and Interest Rate Volatility in Historical Perspective,” Greek Economic Review 15, no. 2 (1993): 2944.
Meltzer, Alan. “Rational Expectations, Risk, Uncertainty, and Market Responses.” In Crises in the Economic and Financial Structure, edited by Wachtel, Paul, 322. New York: Lexington Books, 1982.
Mitchell, B. R.International Historical Statistics. Europe, 1750–1988. Third Edition. New York: Stockton Press, 1992.
Mitchell, B. R.International Historical Statistics: Africa, Asia, and Oceania, 1750–1988. Second Revised Edition. New York: Stockton Press, 1995.
Mouré, Kenneth. Managing the Franc Poincaré: Economic Understanding and Political Constraint in French Monetary Policy, 1928–1936. Cambridge: Cambridge University Press, 1991.
Nelson, Daniel. “Stationarity and Persistence in the GARCH(1,1) Model.” Econometric Theory 6, no. 3 (1990): 318–34.
Romer, Christina. “The Great Crash and the Onset of the Great Depression.” Quarterly Journal of Economics 105 (08 1990): 597624.
Temin, Peter. “Transmission of the Great Depression.” Journal of Economic Perspectives 7, no. 2 (Spring 1993): 87102.
U.S. Department of Commerce, Bureau of the Census. Historical Statistics of the United States, Colonial Times to 1970. Washington, DC: GPO, 1975.
Wachtel, Paul. “Introduction.” In Crises in the Economic and Financial Structure, edited by Wachtel, Paul, ixii. New York: Lexington Books, 1982.
Wigmore, Barrie. “Was the Bank Holiday of 1933 a Run on the Dollar Rather than the Banks?” this JOURNAL 47 (1987): 739–56.
Williamson, Stephen D.Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing.” Journal of Monetary Economics 18 (09 1986): 159–79.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

The Journal of Economic History
  • ISSN: 0022-0507
  • EISSN: 1471-6372
  • URL: /core/journals/journal-of-economic-history
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 16 *
Loading metrics...

Abstract views

Total abstract views: 107 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 21st July 2018. This data will be updated every 24 hours.