Currency depreciation in the 1930s is almost universally dismissed or condemned. It is credited with providing little if any stimulus for economic recovery in the depreciating countries, and blamed for transmitting harmful beggar-thy-neighbor impulses to the rest of the world economy. In this paper we argue for a radically different interpretation of exchange-rate policy in the 1930s. We document, first, that currency depreciation was beneficial for initiating countries. It worked through both the standard supply- and demand-side channels suggested by modern variants of the Keynesian model. We show next that there can in fact be no presumption that currency depreciation in the 1930s was beggar-thy-neighbor poicy. Rather, an empirical analysis of the historical record is needed to determine whether the impact on other countries was favorable or unfavorable. We conclude provisionally that depreciations were beggar-thy-neighbor, but this finding does not support the conclusion that competitive devaluations were without benefit for the system as a whole. We argue that such policies had they been undertaken more widely would have hastened recovery from the Great Depression.
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