Econ113Lect6F - ECON 113: AMERICAN ECONOMIC HISTORY Lecture...

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ECON 113: AMERICAN ECONOMIC HISTORY Lecture 6
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Agenda What classes should I take next semester? Golden Fetters
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Classes next term My picks: Econ 101A: Micro theory Econ 115: The World Economy in the 20 th Century Econ 134: Macroeconomic Policy from the Great Depression to… Econ 141: Econometrics Econ 175: Economic Demography Econ 196: Special Topics in Economics
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The Great Depression For many years, the literature was mainly focused on the U.S. experience. Why?
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The Great Depression
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Golden Fetters The catastrophe was a global phenomenon What made the depression in the U.S. last so long? The explanation has to be applicable to all countries involved, not just the U.S. Eichengreen: Gold Standard is key. The gold standard was the “principal threat” to financial stability and economic prosperity.
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Golden Fetters Then why do “we” associate the Gold Standard with financial stability? Old argument: Collapse of gold standard destroyed confidence in financial stability capital flight Crisis leapfrogs from country to country… But the Gold Standard was not new… Why had it been working just fine up until WWI?
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Golden Fetters What accounts for the stability of the classical gold standard (that is, before WWI)? Kindleberger: Great Britain, and her agent the Bank of England, acted as the lender of last resort on the international scene. In the interwar period, England became too weak to do this and the U.S. did not assume the role (because it was not prepared to do so). Eichengreen: Contradicts Kindleberger. Britain did not singlehandedly manage international monetary affairs. Paris and Berlin were rivals of London. So what’s the answer? The stability of the prewar gold standard was the result of credibility and cooperation .
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Golden Fetters What does credibility mean? Public has confidence that the government will stay committed to a policy. What policy? Maintenance of a balance-of-payments equilibrium Core countries: Britain, France and Germany If one of their central bank’s gold reserves were low (and its exchange rate weakened), funds flowed in from abroad. Why? What exactly is the exchange rate?
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Golden Fetters What is cooperation? Without open communication among parties, central banks lowered their discount rates for example. (Usually with England as the leader)
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This note was uploaded on 02/06/2012 for the course ECON 100A taught by Professor Woroch during the Fall '08 term at University of California, Berkeley.

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Econ113Lect6F - ECON 113: AMERICAN ECONOMIC HISTORY Lecture...

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