The Ends of 27 Big Depressions

Abstract

Many economists believe that leaving the gold standard was a necessary first step to putting an end to the Great Depression. The experience of the United States, in particular, is held up as compelling evidence, but extrapolating from one or even a handful of cases can be misleading. This project estimates the drivers of economic recovery from the Great Depression, using the most comprehensive dataset to date. It analyses 27 countries, using modern nowcasting methods and a new dataset containing more than 230,000 monthly and quarterly observations for over 1,500 variables. The authors use several techniques to estimate the true impact and ultimately found that leaving the gold standard caused inflation expectations to increase and real interest rates to drop, which led to recovery. Their work suggests that big shocks to economic systems can boost inflationary expectations and stimulate demand—the end of the gold standard being a paradigmatic example.