The Gold Standard and the international dimension of the Great Depression

Was the Gold Standard a major determinant of the onset and protracted character of the Great Depression of the 1930s in the USA and worldwide? In this paper, we model the “Gold Standard hypothesis” in an open-economy, dynamic general equilibrium framework. We show that encompassing the international and monetary dimensions of the Great Depression is important to understand the turmoil of the 1930s. In particular, the Gold Standard turns out to be a strong transmission mechanism of monetary shocks from the USA to the rest of the world. Our results also suggest that the waves of successive nominal exchange rate devaluations coupled with the monetary policy implemented in the USA might not have enhanced the recovery.