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When the North Last Headed South: Revisiting the 1930s

Author

Listed:
  • Carmen M. Reinhart

    (University of Maryland)

  • Vincent R. Reinhart

    (American Enterprise Institute)

Abstract
The U.S recession of 2007 to 2009 is unique in the post-World-War-II experience by the broad company it kept. Activity contracted around the world, with the advanced countries of the North experiencing declines in spending normally the purview of the developing economies of the South. The last time that the economies of the North similarly headed south was the 1930s. This paper examines the role of policy in fostering recovery in that decade. With nominal short-term interest rates already near zero, monetary policy in most countries took the unconventional step of delinking currencies from the gold standard. However, analysis of a sample that includes developing countries shows that this was not as universally effective as often claimed, perhaps because the exit from gold was uncoordinated in time, scale, and scope and, in many countries, failed to bring about a substantial depreciation against the dollar. Fiscal policy was also active in the 1930s?many countries sharply increased government spending?but prone to reversals that may have undermined confidence. Countries that were more consistent in keeping spending high tended to recover more quickly.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Carmen M. Reinhart & Vincent R. Reinhart, 2009. "When the North Last Headed South: Revisiting the 1930s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 251-276.
    • Handle: RePEc:bin:bpeajo:v:40:y:2009:i:2009-02:p:251-276
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    References listed on IDEAS

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    Cited by:

    1. da Rocha, Bruno T. & Solomou, Solomos, 2015. "The effects of systemic banking crises in the inter-war period," Journal of International Money and Finance, Elsevier, vol. 54(C), pages 35-49.
    2. Barry Eichengreen, 2016. "The Great Depression in a Modern Mirror," De Economist, Springer, vol. 164(1), pages 1-17, March.
    3. Timothy J. Hatton & Mark Thomas, 2010. "Labour markets in the interwar period and economic recovery in the UK and the USA," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 463-485, Autumn.
    4. Timothy J. Hatton & Mark Thomas, 2012. "Labour Markets in Recession and Recovery: The UK and the USA in the 1920s and 1930s," CEH Discussion Papers 001, Centre for Economic History, Research School of Economics, Australian National University.
    5. Vincent Reinhart, 2011. "A Year of Living Dangerously: The Management of the Financial Crisis in 2008," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 71-90, Winter.

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    More about this item

    Keywords

    macroeconomics; recession; financial crisis; historical economics;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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