The Comparative Performance of Fixed and Flexible Exchange Rate Regimes: Interwar Evidence

Barry Eichengreen

No 3097, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper reports evidence on the characteristics of fixed and flexible exchange rate regimes. It contrasts experience under three interwar exchange rate regimes: the free float of the early 1920s, the fixed rates of 1927-31, and the managed float of the early 1930s. A number of important differences across nominal exchange rate regimes emerge. Major findings include: (1) The variability of nominal exchange rates was positively associated with the freedom of the float. Nominal rates were considerably more variable under free than managed floating. (2) The reduction in nominal exchange rate variability achieved with the move from free to managed floating was not accompanied by a commensurate fall in exchange rate uncertainty. While government policy succeeded in damping spot rate fluctuations, it seems to have been subject to periodic shifts that heightened risk. (3) There was a strong association between nominal exchange rate predictability and real exchange rate predictability in both the free float of 1922-26 and the managed float of 1932-36. Together with (2), this implies that intervention of stabilize nominal rates did not guarantee a commensurate reduction in real exchange rate uncertainty. (4) There was no direct correspondence between the degree of exchange rate stability and the volume of international capital flows. Real interest differentials were larger under the managed float of the 1930s than under the free float of the 1920s. (5) Capital controls provide a major part of the explanation for differences across regimes in the magnitude of real interest differentials. Controls were considerably more prevalent under managed floating than under either free floating or fixed rates. Thus, interwar experience provides a counterexample to the popular notion that capital controls tend to be associated with fixed rate regimes.

Date: 1989-09
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as in Niels Thysgesen et al (eds.) Business Cycles: Theories, Evidence and Analysis, London: Macmillan, 1992

Downloads: (external link)
http://www.nber.org/papers/w3097.pdf (application/pdf)

Related works:
Working Paper: The Comparative Performance of Fixed and Flexible Exchange Rate Regimes: Interwar Evidence (1989)
Working Paper: The Comparative Performance of Fixed and Flexible Exchange Rate Regimes: Interwar Evidence (1989)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:3097

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3097

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().