The transmission of the Great Depression provides the following lessons for the present. It is best to avoid macroeconomic shocks. But when they hit, then the second-best alternative is to suspend or discard the fixed exchange rates that linked economies together in the early years of the Great Depression. When is a shock large enough to abandon a framework like the EMS? How soon should governments and central banks respond? Clio, the muse of history, stands silent on this issue. She says only not to wait too long.
Peter Temin’s article in the Journal of Economic Perspectives appeared just after the unravelling of the European Monetary System (EMS), the precursor of European monetary union. The citation is:
Temin, P., “Transmission of the Great Depression”. Journal of Economic Perspectives 7:2 (Spring, 1993), pp. 87-102 (100).