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Currency Crisis and Unemployment: Sterling in 1931

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  • Barry Eichengreen
  • Olivier Jeanne

Abstract

This paper studies the role of unemployment in sterling's interwar experience. According to most narrative accounts, the proximate cause of the 1931 sterling crisis was a high and rising unemployment rate that placed pressure on British governments to pursue reflationary policies. We present a model which, in the spirit of the second generation' approach to currency crises, highlights the conflict between the objective of low unemployment and defense of the currency and show that it can reproduce the main features of sterling's interwar experience. Econometric evidence lends further support to the view that the proximate cause of the sterling crisis was the dramatic rise in unemployment brought about by external deflationary forces.

Suggested Citation

  • Barry Eichengreen & Olivier Jeanne, 1998. "Currency Crisis and Unemployment: Sterling in 1931," NBER Working Papers 6563, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6563
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    Cited by:

    1. Accominotti, Olivier, 2012. "London Merchant Banks, the Central European Panic, and the Sterling Crisis of 1931," The Journal of Economic History, Cambridge University Press, vol. 72(1), pages 1-43, March.
    2. Remi Bazillier & Boris Najman, 2017. "Labour and Financial Crises: Is Labour Paying the Price of the Crisis?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(1), pages 55-76, March.
    3. Chanelle Duley & Prasanna Gai, 2020. "When the penny doesn't drop - Macroeconomic tail risk and currency crises," National Institute of Economic and Social Research (NIESR) Discussion Papers 520, National Institute of Economic and Social Research.
    4. Nicholas Dimsdale & Nicholas Horsewood, 2009. "The dynamics of consumption and investment in the late Victorian economy," Working Papers 9007, Economic History Society.
    5. Ronicle, David, 2022. "Turning in the widening gyre: monetary and fiscal policy in interwar Britain," Bank of England working papers 968, Bank of England.
    6. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 285-317, Autumn.
    7. Nicholas Dimsdale & Nicholas Horsewood, 2012. "The impact of the Great Depression of the 1930s on the British economy," Working Papers 12028, Economic History Society.
    8. Richard S. Grossman & Christopher M. Meissner, 2010. "International aspects of the Great Depression and the crisis of 2007: similarities, differences, and lessons," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 318-338, Autumn.
    9. Eichengreen, Barry, 2003. "Three generations of crises, three generations of crisis models," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 1089-1094, December.
    10. Jeanne, Olivier, 1999. "Currency Crises: A Perspective on Recent Theoretical Developments," CEPR Discussion Papers 2170, C.E.P.R. Discussion Papers.

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    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance

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