DP15061 The Ends of 30 Big Depressions

Author(s): Martin Ellison, Sang Seok Lee, Kevin Hjortshøj O'Rourke
Publication Date: July 2020
Date Revised: July 2021
Keyword(s): gold standard, Great Depression, inflationary expectations
JEL(s): F33, N10
Programme Areas: Economic History, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15061

How did countries recover from the Great Depression? In this paper we explore the argument that leaving the gold standard helped by boosting inflationary expectations and lowering real interest rates. We do so for a sample of 30 countries, using modern nowcasting methods and a new dataset containing more than 230,000 monthly and quarterly observations for over 1, 500 variables. In those cases where the departure from gold happened on clearly defined dates, it seems clear that inflationary expectations rose in the wake of departure. IV regressions and synthetic matching techniques suggest that the relationship is causal, a finding that is supported by DSGE model-based counterfactuals as well.