Great Spending Crashes

Gold sterilization and the recession of 1937–1938

“…This article deliberately stops short of formally examining the impact of these monetary changes on the real economy. Economists who have studied the 1930s have broadly concluded that the monetary shocks of the period were an important source of fluctuations in real economic activity (Romer and Romer 1989; McCallum 1990; Romer 1992, Bordo, Choudhri and Schwartz 1995; Velde 2009; Beckworth and Hendrickson 2011). Thus, it does not seem unreasonable to conclude that the sterilization policy succeeded in suppressing incipient inflationary pressures, but at the cost of a major recession.…”

“… 9 Beckworth and Hendrickson (2011) use a VAR model to examine the role of monetary shocks in great spending crashes and conclude that money multiplier and monetary base shocks were important during this period, but that the slowdown in the monetary base was more important.…”