Shooting on a moving target: explaining European bank rates during the interwar period

Kirsten Wandschneider and Nikolaus Wolf

International Journal of Economics and Business Research, 2010, vol. 2, issue 1/2, 31-48

Abstract: This paper describes how countries adjusted their monetary policy in response to the Great Depression. We estimate central bank rate reaction functions for a panel of 22 countries during the years 1925-1936. We find that countries moved away from convertibility towards a more 'modern' monetary policy based on exchange rate stabilisation, but not yet output stabilisation or even modern price level targeting. This move to exchange rate stabilisation was accompanied by the formation of monetary policy blocs around pre-existing economic relations. Countries' interwar policy choices offer lessons for countries remaining in or choosing to join the European Monetary Union today.

Keywords: interwar gold standard; monetary policies; exchange rate stabilisation; Economic and Monetary Union; EMU; bank rates; Great Depression; convertibility; output stabilisation; price level targeting; economic relations; banking. (search for similar items in EconPapers)
Date: 2010
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Working Paper: Shooting on a Moving Target: Eyplaining European Bank Rates during the Interwar Period (2009)
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