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Title:Overvalued: Swedish monetary policy in the 1930s PDF Logo
Authors:Rathke, Alexander
Straumann, Tobias
Woitek, Ulrich
Issue Date:2011
Series/Report no.:CESifo working paper: Monetary Policy and International Finance 3692
Abstract:This paper reconsiders the role of monetary policy in Sweden's strong recovery from the Great Depression. The Riksbank in the 1930s is sometimes seen as an example of a central bank that was relatively innovative in terms of the conduct of monetary policy. To consider this analytically, we estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. We find that the model captures the key dynamics of the period surprisingly well. Importantly, our findings suggest that Sweden avoided the worst excesses of the depression by conducting conservative rather than innovative monetary policy. We find that, by keeping the Swedish krona undervalued to replenish foreign reserves, Sweden's exchange rate policy unintentionally contributed to the Swedish growth miracle of the 1930s, avoiding a major slump in 1932 and enabling the country to benefit quickly from the eventual recovery of world demand.
JEL:C11
E58
F41
N14
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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