The Ends of 27 Big Depressions

Abstract

How did countries recover from the Great Depression? In this paper we explore the argument that leaving the gold standard helped by boosting inflationary expectations and lowering real interest rates. We do so for a sample of 27 countries, using modern nowcasting methods and a new data set containing more than 230, 000 monthly and quarterly observations for over 1, 500 variables. In those cases where the departure from gold happened on clearly defined dates, it seems clear that inflationary expectations rose in the wake of departure. IV, diff-in-diff, and synthetic matching techniques suggest that the relationship is causal.

Measuring Inflation Expectations in Interwar Britain

“…Shibamoto and Shizume (2014) argue that Japan benefited from a policy regime change correlated with devaluation in 1931. The comparative evidence considered by Ellison, Lee, and O'Rourke (2020) shows that most of the countries devaluing in the 1930s saw a shift in inflationary expectations and a fall in real interest rates. There were, however, some significant exceptions, including British India, Denmark, Sweden, and the UK.…”