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

67 Pages Posted: 20 Jun 2000 Last revised: 29 May 2008

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Alan M. Taylor

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: March 1997

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.

Suggested Citation

Obstfeld, Maurice and Taylor, Alan M., The Great Depression as a Watershed: International Capital Mobility Over the Long Run (March 1997). NBER Working Paper No. w5960. Available at SSRN: https://ssrn.com/abstract=225740

Maurice Obstfeld (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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Alan M. Taylor

University of California, Davis - Department of Economics ( email )

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HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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