Change of Monetary Regime, Contracts, and Prices: Lessons from the Great Depression, 1932-1935 / Sebastian Edwards.

Format:

Book

Author/Creator:

Edwards, Sebastian.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26085.

NBER working paper series no. w26085

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Change of Monetary Regime, Contracts, and Prices

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

In this paper I analyze the process leading to the abandonment of the gold standard in the U.S. in1933, and the devaluation of the dollar in 1934. I argue that most changes of monetary regime have an impact on contracts. In this specific case, contracts that were written in terms of gold, or "gold equivalent," were rewritten in paper dollars. Congress did this on June 5 1933, when it abrogated the "gold clause" retroactively. The Supreme Court validated the move in February 1935. The result was a very large transfer of wealth from creditors to debtors. I use daily data on commodity prices to investigate the extent to which these policies contributed to ending deflation. I find that commodity prices reacted strongly to the announcement of policy changes, and to legal procedures involving contracts. These results are consistent with the "change in regime" hypothesis of Sargent.

Notes:

Print version record

July 2019.