Working Paper: NBER ID: w19112
Authors: Michael D. Bordo; Harold James
Abstract: There are some striking similarities between the pre 1914 gold standard and EMU today. Both arrangements are based on fixed exchange rates, monetary and fiscal orthodoxy. Each regime gave easy access by financially underdeveloped peripheral countries to capital from the core countries. But the gold standard was a contingent rule--in the case of an emergency like a major war or a serious financial crisis --a country could temporarily devalue its currency. The EMU has no such safety valve. Capital flows in both regimes fueled asset price booms via the banking system ending in major crises in the peripheral countries. But not having the escape clause has meant that present day Greece and other peripheral European countries have suffered much greater economic harm than did Argentina in the Baring Crisis of 1890.
Keywords: European crisis; financial crises; gold standard; EMU
JEL Codes: E00; N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital flows (F32) | asset price booms (E32) |
| asset price booms (E32) | financial crises (G01) |
| lack of escape clause (D86) | greater economic harm in peripheral countries (F69) |