The 1933 decision to devalue the dollar
Mason, Robert Dale
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Recent literature presents conflicting views concerning the benefits from devaluing the dollar in 1933. Proponents of devaluing the dollar (Eichengreen 1992, Eichengreen and Sachs 1985, Bernanke 1995, and Temin and Wigmore 1990) suggest that devaluation hastened U. S. recovery by enhancing competitiveness, encouraging investment, and lowering real interest rates. Other researchers (Bordo and Kydland 1996, Bordo and Rockoff 1996, and Obstfeld and Taylor 2003), however, claim that devaluation may impede recovery by reducing output and investment while raising real interest rates. This dissertation presents a vector autoregression (VAR) estimate of the effects of the United States’ decision to devalue the dollar on real interest rates and output. It finds that devaluation raised real interest rates while lowering real output, and thus offers support to the theories emphasizing devaluation’s drawbacks.