Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30620
Authors: 
Wandschneider, Kirsten
Wolf, Nikolaus
Year of Publication: 
2009
Series/Report no.: 
CESifo working paper 2694
Abstract: 
This paper describes the monetary policy response of countries during the inter-war period. How did central banks react to the Great Depression? How did countries balance the externals demands of the gold standard with domestic policy pressures? What was the optimal level of international policy coordination? We use weekly data over the period 1925-1936 to estimate central bank rate reaction functions for a panel of 22 countries during the inter-war gold standard. The estimates suggest to us changing objectives for monetary policy. Countries moved away from the sole objective of convertibility and towards a more ‘modern’ monetary policy based on exchange rate stabilization, but not yet output stabilization or even modern price level targeting. Importantly, this move to exchange rate stabilization 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.
Subjects: 
monetary policy
great depression
reaction functions
JEL: 
N14
E43
E58
Document Type: 
Working Paper

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