Exchange Rates, Tariffs and Prices in 1930s Britain

Abstract

This paper investigates the degree of pass-through from import prices and tariffs to wholesale prices in interwar Britain using a new highfrequency micro data set. The main results are: (i) Pass-through from import prices and tariffs to wholesale prices was economically and statistically significant. (ii) Despite devaluation, import prices exacerbated deflation in the early 1930s because of the global slump in export prices. (iii) Rising protection, however, was a mild stimulus to prices during the shift to inflation.We are today in the middle of the greatest economic catastrophe […] of the modern world.-John Maynard Keynes (1931) 1The "economic catastrophe" of the Great Depression led to a slump in output, prices and jobs. As figure 1 shows, economic activity contracted by 5.8 per cent, retail prices dropped by 11.6 per cent and the unemployment rate doubled to more † This paper is a chapter in Keynes's Economic Consequences of the Peace after 100 Years: Polemics and Policy (Cambridge University Press, forthcoming), edited by Adam Tooze, Giancarlo Corsetti, Maurice Obstfeld, and Patricia Clavin. The research has been financed by the Leverhulme Trust