Title: Shooting on a moving target: explaining European bank rates during the interwar period

Authors: Kirsten Wandschneider, Nikolaus Wolf

Addresses: Occidental College, 1600 Campus Road, Los Angeles, CA 90041, USA. ' University of Warwick and CEPR, Coventry CV4 7AL, UK

Abstract: This paper describes how countries adjusted their monetary policy in response to the Great Depression. We estimate central bank rate reaction functions for a panel of 22 countries during the years 1925-1936. We find that countries moved away from convertibility towards a more |modern| monetary policy based on exchange rate stabilisation, but not yet output stabilisation or even modern price level targeting. This move to exchange rate stabilisation 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.

Keywords: interwar gold standard; monetary policies; exchange rate stabilisation; Economic and Monetary Union; EMU; bank rates; Great Depression; convertibility; output stabilisation; price level targeting; economic relations; banking.

DOI: 10.1504/IJEBR.2010.029727

International Journal of Economics and Business Research, 2010 Vol.2 No.1/2, pp.31 - 48

Published online: 01 Dec 2009 *

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