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The Great Depression as a Watershed: International Capital Mobility over the Long Run

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  • Maurice Obstfeld
  • Alan M. Taylor
Abstract
This paper surveys the evolution of international capital mobility since the late nineteenth century. We begin with an overview of empirical evidence on the fall and rise of integration in the global capital market. A discussion of institutional developments focuses on the use of capital controls and the pursuit of domestic macroeconomic policy objectives in the context of changing monetary regimes. A fundamental macroeconomic policy trilemma has forced policymakers to trade off among conflicting goals. The natural implication of the trilemma is that capital mobility has prevailed and expanded under circumstances of widespread political support either for an exchange-rate subordinated monetary policy regime (e.g., the gold standard), or for a monetary regime geared mainly toward domestic objectives at the expense of exchange-rate stability (e.g., the recent float). Through its effect on popular attitudes toward both the gold standard and the legitimate scope for government macroeconomic intervention, the Great Depression emerges as the key turning point in the recent history of international capital markets.

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  • Maurice Obstfeld & Alan M. Taylor, 1997. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Working Papers 5960, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5960
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    More about this item

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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