Working Paper: NBER ID: w27586
Authors: Martin Ellison; Sang Seok Lee; Kevin Hjortshøj 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: Great Depression; Gold Standard; Inflation Expectations; Real Interest Rates; Economic Recovery
JEL Codes: F33; N10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Leaving the gold standard (F33) | Increased inflationary expectations (E31) |
| Increased inflationary expectations (E31) | Decreased real interest rates (E43) |
| Leaving the gold standard (F33) | Decreased real interest rates (E43) |
| Increased inflationary expectations (E31) | Economic recovery (E65) |
| Decreased real interest rates (E43) | Economic recovery (E65) |
| Leaving the gold standard (F33) | Economic recovery (E65) |