Reinhart and Reinhart paper

This paper should provide very useful information for those of you trying to determine whether the data shows fiscal policy is effective. (This shows it is)

Carmen and Vince decided only to use govt spending rather than net spending so keep that in mind.

My take is that exiting the gold standard per se does nothing if all nations do it together. Export advantages gained by doing it first are reversed when the rest join in. What exiting the gold standard did do is allow for fiscal expansion otherwise not possible.


I don’t know if I ever sent this to you. But I’ve attached an article that Carmen and I published in the Brookings Papers on Economic Activity last year about the Great Depression. The bottom line is that inconsistent fiscal stimulus lengthened the adjustment.


From the abstract:

Fiscal policy was also active—most countries sharply increased government spending—but was prone to reversals that may have undermined confidence. Countries that more consistently kept spending high tended to recover more quickly.

And later under fiscal policy:

Although fiscal impetus was forceful in some countries, in almost all it was also erratic. Figure 4 further reveals that each of the three large increases in spending in the United States and Canada was followed by some retrenchment. The impetus from government spending in the United States in 1932, 1934, and 1936 appeared on track to provide considerable lift to the economy, but after each of those years real spending dropped off, imparting an arithmetic drag on expansion. The fact that fiscal expansion has been aggressive in many countries in 2009 works to help contain the contraction in the global economy. That it will continue to do so is far from assured, if history is any guide.