A couple of weeks ago I came across a great paper by Peter Rosenkranz, Tobias Straumann and Ulrich Woitek – “A Small Open Economy in the Great Depression: the Case of Switzerland”. It is great paper. Here is the abstract:
Estimating a New Keynesian small open economy model for the period 1926-1938, we investigate the causes of the slow recovery of the Swiss economy of the Great Depression in the 1930s. Our results show that the decision to participate in the gold bloc after 1933 at an overvalued currency can be identified as the main reason for the unusual long lasting recession. Even the recovery of the world econ- omy starting in 1931/1932, and thus a boost of foreign demand could not offset the negative effects of disadvantageous terms of trade. A counterfactual experiment demonstrates that in case of leaving gold earlier (e.g. together with the UK in 1931), the Swiss economy would have recovered much faster, almost immediately reaching the pre-crisis output level.
Marcus Nunes
/ February 25, 2013Lars One more evidence on the long known association between opting out of the gold standard and economic recovery. You really don´t need to ‘cloth it up’ in a NK model, but that´s fine because people will take the MM proposition more seriouly!
The other day I was happy that you linked to a NK model that showed MP WAS NOT lax in 2002-6!
http://thefaintofheart.wordpress.com/2013/02/05/formally-vindicated/
Lars Christensen
/ February 25, 2013Marcus, one problem with the paper is actually that the authors call it a New Keynesian model. I like the more correct term ‘new open economy macroeconomics’ (NOEM) models.
Alex Salter
/ February 25, 2013“Our results show that the decision to participate in the gold bloc after 1933 at an overvalued currency can be identified as the main reason for the unusual long lasting recession.”
Why is the counterfactual leaving the gold standard entirely, rather than a depreciation of the currency?