How was the Quantitative Easing Program of the 1930s Unwound?
Outside of the recent past, excess reserves have only concerned policymakers in one other period: the Great Depression. The data show that excess reserves in the 1930s were never actively unwound through a reduction in the monetary base. Nominal economic growth swelled required reserves while an exogenous reduction in monetary gold inflows due to war embargoes in Europe allowed excess reserves to naturally decline towards zero. Excess reserves fell rapidly in early 1941 and would have unwound fully even without the entry of the United States into World War II. As such, policy tightening was at no point necessary and could have contributed to the 1937-1938 Recession.
The authors would like to thank to David Wheelock, Jonathan Rose, Mark Carlson, Andrew Jalil, Christopher Hanes, Roger Sandilands, Mary Hansen, and seminar audiences at the Social Science History Association, the Cato Monetary Workshop, and the Southern Economic Association Meetings for valuable comments, as well as to Daniel Kirwin for invaluable research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Matthew Jaremski & Gabriel Mathy, 2017. "How was the Quantitative Easing Program of the 1930s Unwound?," Explorations in Economic History, . citation courtesy of