The purpose of this research is to examine the generality of recent findings regarding exchange rate variability and to increase the number of observations of distinct international monetary regimes by the assembly of a new data set for the interwar period. The study consists of four components. The first involves the gathering and assembling the relevant macroeconomic and financial data for the interwar period. The remaining three components will utilize the data to analyze the interwar experience. Part two will analyze the statistical properties of and relationships among exchange rates and interest rates. The goal will be to determine whether market efficiency and similar relationships differed across exchange rate regimes. Part three will analyze the relationship of the exchange rate system to the business cycle, with the goal of determining whether the form of the exchange rate system had an independent impact on cyclical fluctuations. The fourth part will focus on the origins, operation, and demise of the interwar system of pegged rates, with goal of identifying domestic and international preconditions for the establishment and successful maintenance of fixed-rate systems. $$$ A disturbing feature of the system of floating, but managed exchange rates that has prevailed since 1973 is the surprising degree of exchange rate variability. In fact, exchange rates have been much more volatile than early proponents of exchange rate flexibility anticipated. Some have argued that recent increases in exchange rate volatility and the concurrent growth of international trade imbalances are the direct consequences of abandoning the fixed exchange rate regimes of the Bretton Woods System. However, it is not at all clear why exchange have become more volatile or that this was necessarily a bad thing, given the magnitude of recent shocks to the international monetary system. This research is important because it will provide a better understanding of the operating properties of alternative exchange rate regimes. The study will involve the assembly and analysis of relevant macroeconomic and international financial data for the interwar period. Gathering and analyzing these data will help other scholars as well as policy makers to draw sounder conclusions about the benefits and costs of alternative exchange rate arrangements.
