TY  - JOUR
AU  - Hsieh,Chang-Tai
AU  - Romer,Christina D.
TI  - Was the Federal Reserve Fettered?  Devaluation Expectations in the 1932 Monetary Expansion
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8113
PY  - 2001
Y2  - February 2001
UR  - http://www.nber.org/papers/w8113
L1  - http://www.nber.org/papers/w8113.pdf
N1  - Author contact info:
Chang-Tai Hsieh
Booth School of Business
University of Chicago
5807 S Woodlawn Ave
Chicago, IL 60637
Tel: 773/8340590
Fax: 484-589-3583
E-Mail: chsieh@chicagoBooth.edu

Christina D. Romer
Department of Economics
University of California, Berkeley
549 Evans Hall, #3880
Berkeley, CA 94720
Tel: 510/642-4317
Fax: 510/642-6615
E-Mail: cromer@econ.berkeley.edu
AB  - A key question about the Great Depression is whether expansionary monetary policy in the United States would have led to a loss of confidence in the U. S. commitment to the gold standard. This paper uses the $1 billion expansionary open market operation undertaken in the spring of 1932 as a crucial case study of the link between monetary expansion and expectations of devaluation. Data on forward exchange rates are used to measure expectations of devaluation during this episode. We find little evidence that the large monetary expansion led investors to believe that the United States would devalue. The financial press and the records of the Federal Reserve also show little evidence of expectations of devaluation or fear of a speculative attack. We find that a flawed model of the effects of monetary policy and conflict among the twelve Federal Reserve banks, rather than concern about the gold standard, led the Federal Reserve to suspend the expansionary policy in the summer of 1932.
ER  -