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Title: Relaxing the External Constraint: Europe in the 1930s

Author(s): Barry Eichengreen

Publication Date: August 1990

Keyword(s): Balance of Payments, Exchange Rates and Interwar Years

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Eichengreen, B. 1990. 'Relaxing the External Constraint: Europe in the 1930s'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=452