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

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  • Kirsten Wandschneider
  • Nikolaus Wolf

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.

Suggested Citation

  • Kirsten Wandschneider & Nikolaus Wolf, 2010. "Shooting on a moving target: explaining European bank rates during the interwar period," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 2(1/2), pages 31-48.
    • Handle: RePEc:ids:ijecbr:v:2:y:2010:i:1/2:p:31-48
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    More about this item

    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.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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