The Economic Consequences of the Franc Poincare

In this paper we reassess the cyclical performance of the French economy in the 1920s, focusing in particular on the period 1926-1931 and on France's resistance to the Great Depression. France expanded rapidly after 1926 and, unlike the other leading industrial economies, resisted the onset of the Depression until 1931. We find strikingly little support for the conventional explanation for these events, which emphasizes an undervalued French franc and an export-led boom. While French exports as a share of GDP turned down as early as 1928, the economy continued to expand for several subsequent years. Investment, not exports, emerges as the proximate source of the French economy's resistance to the Great Depression. And fiscal policy emerges as the major determinant of the surge in French investment spending. Previous accounts have emphasized the role of monetary policy in determining the seal and nominal exchange rates ostensibly responsible for French economic fluctuations in the decade after 1921. In contrast, we argue here for a more balanced view of the roles of monetary and fiscal policies in French macroeconomic fluctuations over that critical decade.