1920s Depression And Impact Of GS

Question 1

Exchange rate policy and persistence

Answer 1

Output gap

Compare with devalued countries

Question 2

Overvaluation and overshooting: model

Answer 2

P»eP*. Uncompetitive, needs to reduce P

As e rises faster than P, real exchange rate e/P reaches a peak

Question 3

Deflationary monetary policies were needed to restore the peg

Answer 3

Explain using PPP
I.e. it’s a result of choosing $4.86 but not the aim
Also made worse (real ir) due to deflation

Question 4

Overvaluation Solomon Vartis

Answer 4

Most significant 1921, correction after So not as early estimates debated(1925) only matters 19-22

Question 5

Trade effects, compared with undervalued currency of France

Both SR and hysteresis

Answer 5

80% 1913 X
Fr 60% higher than 1913

Sharp fall of X following correction of real ex. M-L condition.

Question 6

Labour market effect on wage gap

Answer 6

(On the countray to e/p where) wage has inertia so P falls faster

Question 7

Trade hysteresis and evi

Answer 7

Import penetration

Question 8

Evi for effect of overvaluation on ue, recovery

Answer 8

Broad berry Scandinavia
Eichengreen 12 countries model on cyclical recovery until 1927 showed significant correlation between changes in er and changes in IP. However, evaluating this what he focuses is growth rate, but note that Uk did not return to the former equilibrium / trend - capacity gap

Question 9

Persistence mechanisms

Answer 9

Trade effects

Real debt burden

Question 10

Deflation

Answer 10

1913=100
1920=260
1922=180

Question 11

-C -NX

Answer 11

-4.1 -3.4

Question 12

Nominal ir, real ir

Answer 12

In 1920 i 4% to 6%, in 1921-3 r over 20%

Question 13

Path of exports

Answer 13

Increase 1921 despite dip in 1926