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Policy during the Great Depression

Paper Session

Monday, Jan. 4, 2021 3:45 PM - 5:45 PM (EST)

Hosted By: Cliometric Society
  • Chair: Chenzi Xu, Stanford University

Blowing against the Wind? A Narrative Approach to Central Bank Foreign Exchange Intervention

Alain Naef
University of California-Berkeley


Studies on the effectiveness of central bank intervention yield mixed results and poorly deal with endogeneity. By using a narrative approach, this paper is the first to deal with intraday changes in market conditions to show the real effect of central bank foreign exchange intervention on exchange rates. Some studies find that intervention works in up to 80% of cases. By accounting for intraday market moving news, I find that in adverse conditions, the Bank of England only managed to influence the exchange rate in 8% of cases. I use both machine learning and human assessment to confirm the validity of the narrative assessment.

The Great Depression as a Saving Glut

Victor Degorce
School for Advanced Studies in the Social Sciences
Eric Monnet
School for Advanced Studies in the Social Sciences, Paris School of Economics, and Centre for Economic Policy Research


"We describe a new mechanism through which banking crises led to a fall in economic activity during the Great Depression. Based on a new international database of deposits in savings institutions and commercial banks between 1920 and 1936, we show that the banking crisis were characterized by transfers of deposits from commercial banks to non-bank institutions that collected savings but did not lend (or lent less) to the economy. This transfer from bank deposits to savings institutions dwarfed the already known increase in cash hoarding.
Using a dynamic panel setting, we show that the severity of the economic crisis depended on the magnitude of the shift from deposits towards savings institutions because these institutions did not replace banks as lenders to the economy. This disruption in the sources of credit is different from the ones highlighted in the literature (Friedman & Schwartz, Bernanke)."

The Smoot-Hawley Trade War

Kris J. Mitchener
Santa Clara University & NBER
Kirsten Wandschneider
Occidental College
Kevin O'Rourke
NYU Abu Dhabi


Using a new quarterly dataset on bilateral trade for 99 countries during the interwar period, we provide the first empirical assessment of the effect of the trade war that erupted following the adoption of the Smoot-Hawley tariff in June 1930. Several countries protested the tariff while others went further and retaliated: US exports to these countries fell by between 12 and 22 percent. In contrast, there was no systematic impact on these countries’ exports to the US.
JEL Classifications
  • N1 - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
  • E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit