The limits of internal devaluation: Switzerland during the great depression

Peter Rosenkranz, Tobias Straumann and Ulrich Woitek ()
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Ulrich Woitek: University of Zurich

Swiss Journal of Economics and Statistics, 2022, vol. 158, issue 1, 1-17

Abstract: Abstract During the Great Depression, countries endowed with abundant gold reserves were not able to leave the gold standard and devalue their currencies until the mid-1930s. Instead, they were forced to go down the road of internal devaluation. We analyze the policies of the Swiss authorities by estimating a New Keynesian small open economy model. Our results show that the long adherence to the gold standard and the failure of internal devaluation imposed considerable costs on the Swiss economy. Moreover, counterfactual exercises suggest that a timely devaluation would have led to an early recovery from the Great Depression.

Keywords: Great Depression; Switzerland; New Keynesian business cycle model (search for similar items in EconPapers)
JEL-codes: E12 E32 N14 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1186/s41937-022-00100-9

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