Kirsten Wandschneider

Shooting on a Moving Target: Explaining European Bank Rates during the Interwar Period

This paper describes the monetary policy response of countries during the inter-war period. How did central banks react to the Great Depression? How did countries balance the externals demands of the gold standard with domestic policy pressures? What was the optimal level of international policy coordination? We use weekly data over the period 1925-1936 to estimate central bank rate reaction functions for a panel of 22 countries during the inter-war gold standard. The estimates suggest to us changing objectives for monetary policy. Countries moved away from the sole objective of convertibility and towards a more ‘modern’ monetary policy based on exchange rate stabilization, but not yet output stabilization or even modern price level targeting. Importantly, this move to exchange rate stabilization was accompanied by the formation of monetary policy blocs around pre-existing economic relations. Countries’ interwar policy choices offer lessons for countries remaining in or choosing to join the European Monetary Union today.

The Stability of the Interwar Gold Exchange Standard: Did Politics Matter?

The collapse of the inter-war gold standard has frequently been studied in economic his-tory. This paper proposes a discrete time duration model to analyze how economic and polit-ical indicators affected the length of time a country remained on the gold standard. We rely on a panel data set of 24 countries over the years 1922-1938, and incorporate new measures of political and institutional variables. The results of this study identify high per capita income growth, large foreign currency and gold reserves, trade with other countries on gold, interna-tional creditor status, and the prior experience of hyperinflation as factors that increased the probability that a country would remain on gold. In contrast, democratic regimes that were exposed to a relatively high percentage of left-wing representation in parliament left the gold standard early. We also offer predicted survival probabilities for selected key countries on the gold standard. These survival rates show that Britain abandoned the gold exchange standard at a much higher survival probability, compared with other countries in the system.

The effect of political regimes and technology on economic growth

Do political regimes have a significant effect on economic growth? This study builds on the new neoclassical growth model to identify economic determinants of growth, and explicitly tests for the influence of political variables on economic performance for the 1990s. The results suggest that democracies and bureaucracies significantly outperform autocracies. Economic growth is also promoted by increased protection of property rights, and higher investment in education. Moreover, technology has become a requirement for efficient production, and hence, is crucial in promoting growth. Countries can therefore increase the level of economic growth by increasing the levels of education and technology in the economy, and establishing codified laws to foster property rights.

Peace and Economic Interdependence in the Middle East

Can economic interdependence pacify the Middle East? While Middle Eastern countries have, for the most part, avoided the global trend of regionalism, this study provides empirical evidence that Middle Eastern countries with significant trade ties to other countries in the region do cooperate more and fight less. In addition to confirming the liberal notion of peace through trade, this study shows that several conditions outlined by the selectorate theory of political survival must be fulfilled if economic interdependence in the Middle East is to be achieved. A case study outlining Israeli and Turkish economic cooperation is used to show the selectorate models regional compatibility. The regional applicability of the selectorate theory leads us to conclude that politically liberal countries are more likely to maintain economic relations with one another than with autocratic ones. Since liberal countries will be more economically interdependent with one another they will also be more peaceful towards one another. Ultimately, then, this study concludes that political liberalisation is one way of enhancing regional economic interdependence and consequently the prospects for a more peaceful Middle East.

Landschaften as Credit Purveyors—The Example of East Prussia

Landschaften were cooperative mortgage associations that emerged in Prussia after the Seven Years War (1756–1763) to support the Prussian landed nobility. Landschaften issued covered mortgage bonds, called Pfandbriefe, which helped re-capitalize the Prussian estates. Relying on mortgage data for 554 estates, this article provides a detailed look at one of these institutions—the Landschaft of East Prussia. The article offers insights into the self-selection of participants and the distribution of credit. It also gives a quantitative assessment of the economic effects of the Landschaften with respect to ownership patterns and estate size.

Lending to Lemons

Financial markets have been shown to be susceptible to the negative economic consequences of information asymmetry and adverse selection. In this dissertation, I show how the theory of adverse selection in bank lending is reflected clearly in a recent case of Japanese bank failure – New Bank Tokyo – and I identify a potential new rationale for the Akerlof process in bank lending that is not predicted by the literature. Moreover, by modelling the lending pattern of the bank, I demonstrate that it failed to achieve its stated objective of revitalizing the economy of Tokyo, and failed to make a substantial impact on the problematic ‘middle-risk gap’ in the Japanese interest rate structure. I conclude that the project was a suboptimal allocation of financial resources to an imprudent lending institution.