NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Currency Crisis and Unemployment: Sterling in 1931

Barry Eichengreen, Olivier Jeanne

NBER Working Paper No. 6563
Issued in May 1998
NBER Program(s):   IFM

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.

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Document Object Identifier (DOI): 10.3386/w6563

Published: Currency Crisis and Unemployment: Sterling in 1931, Barry Eichengreen, Olivier Jeanne. in Currency Crises, Krugman. 2000

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