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Overvalued: Swedish Monetary Policy in the 1930s

Alexander Rathke

University of Zurich

Tobias Straumann

affiliation not provided to SSRN

Ulrich Woitek

University of Zurich

December 21, 2011

University of Zurich Working Paper No. 58

This paper reconsiders the role of monetary policy in Sweden’s strong recovery from the Great Depression. The Riksbank in the 1930s is sometimes seen as an example of a central bank that was relatively innovative in terms of the conduct of monetary policy. To consider this analytically, we estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. We find that the model captures the key dynamics of the period surprisingly well. Importantly, our findings suggest that Sweden avoided the worst excesses of the depression by conducting conservative rather than innovative monetary policy. We find that, by keeping the Swedish krona undervalued to replenish foreign reserves, Sweden’s exchange rate policy unintentionally contributed to the Swedish growth miracle of the 1930s, avoiding a major slump in 1932 and enabling the country to benefit quickly from the eventual recovery of world demand.

Number of Pages in PDF File: 37

Keywords: small open economy models, exchange rate policy, structural estimation, Bayesian analysis, great depression

JEL Classification: C11, E58, F41, N14

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Date posted: January 11, 2012  

Suggested Citation

Rathke, Alexander and Straumann, Tobias and Woitek, Ulrich, Overvalued: Swedish Monetary Policy in the 1930s (December 21, 2011). University of Zurich Working Paper No. 58. Available at SSRN: http://ssrn.com/abstract=1983178 or http://dx.doi.org/10.2139/ssrn.1983178

Contact Information

Alexander Rathke (Contact Author)
University of Zurich ( email )
Zuerich, 8006
Tobias Straumann
affiliation not provided to SSRN ( email )
Ulrich Woitek
University of Zurich ( email )
Zürichbergstrasse 14
CH-8032 Zurich
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