A Small Open Economy in the Great Depression: The Case of Switzerland

University of Zurich, Department of Economics, Working Paper No. 164

45 Pages Posted: 27 Jun 2014

See all articles by Peter Rosenkranz

Peter Rosenkranz

Asian Development Bank

Tobias Straumann

University of Zurich - Department of Economics

Ulrich Woitek

University of Zurich

Date Written: June 23, 2014

Abstract

In historical accounts of the world economic crisis of the 1930s, Switzerland is known for its staunch defense of the gold standard and the rise of corporatist policies. Yet, so far, the literature has not discussed the implications of these two features. This paper tries to show how the combination of hard-currency policy and nominal rigidities introduced by corporatist policies proved to be fatal for growth. Estimating a New Keynesian small open economy model for the period 1926-1938, we show that the decision to participate in the Gold Bloc after 1933 at an overvalued currency can be identified as the main reason for the unusual long lasting recession and that price rigidities from 1931 to 1936 significantly slowed down the adjustment process.

Keywords: Great Depression, Switzerland, New Keynesian Business Cycle Model

JEL Classification: E12, E32, N14

Suggested Citation

Rosenkranz, Peter and Straumann, Tobias and Woitek, Ulrich, A Small Open Economy in the Great Depression: The Case of Switzerland (June 23, 2014). University of Zurich, Department of Economics, Working Paper No. 164, Available at SSRN: https://ssrn.com/abstract=2459025 or http://dx.doi.org/10.2139/ssrn.2459025

Peter Rosenkranz (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Tobias Straumann

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Ulrich Woitek

University of Zurich ( email )

Zürichbergstrasse 14
CH-8032 Zurich
Switzerland

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