Currency Crisis and Unemployment: Sterling in 1931
University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)
NBER Working Paper No. w6563
This paper studies the role of unemployment in sterling's interwar experience. According to most narrative accounts, the proximate cause of the 1931 sterling crisis was a high and rising unemployment rate that placed pressure on British governments to pursue reflationary policies. We present a model which, in the spirit of the second generation' approach to currency crises, highlights the conflict between the objective of low unemployment and defense of the currency and show that it can reproduce the main features of sterling's interwar experience. Econometric evidence lends further support to the view that the proximate cause of the sterling crisis was the dramatic rise in unemployment brought about by external deflationary forces.
Number of Pages in PDF File: 60working papers series
Date posted: August 7, 2000
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