Change of Monetary Regime, Contracts, and Prices: Lessons from the Great Depression, 1932-1935

Sebastian Edwards

No 26085, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper I analyze the process leading to the abandonment of the gold standard in the U.S. in1933, and the devaluation of the dollar in 1934. I argue that most changes of monetary regime have an impact on contracts. In this specific case, contracts that were written in terms of gold, or “gold equivalent,” were rewritten in paper dollars. Congress did this on June 5 1933, when it abrogated the “gold clause” retroactively. The Supreme Court validated the move in February 1935. The result was a very large transfer of wealth from creditors to debtors. I use daily data on commodity prices to investigate the extent to which these policies contributed to ending deflation. I find that commodity prices reacted strongly to the announcement of policy changes, and to legal procedures involving contracts. These results are consistent with the “change in regime” hypothesis of Sargent.

JEL-codes: B22 F31 F33 N1 N82 (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-cba, nep-his and nep-mon
Note: DAE IFM ITI
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Published as Sebastian Edwards, 2020. "Change of monetary regime, contracts, and prices: lessons from the great depression, 1932-1935," Journal of International Money and Finance, .

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