Working Paper: CEPR ID: DP15061
Authors: Martin Ellison; Sang Seok Lee; Kevin O'Rourke
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.
Keywords: Gold Standard; Great Depression; Inflationary Expectations
JEL Codes: N10; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| departure from the gold standard (F33) | inflationary expectations (E31) |
| departure from the gold standard (F33) | real interest rates (E43) |
| real interest rates (E43) | economic recovery (E65) |
| inflationary expectations (E31) | economic recovery (E65) |
| departure from the gold standard (F33) | economic recovery (E65) |