| This dissertation examines the ability of monetary authorities to control the nominal stock of money under a pegged exchange rate.;Empirically, the debate about the consequences of a fixed exchange rate for short-run monetary control has focused on estimation of offset coefficients. While studies of the Bretton Woods period seem to support the hypothesis of monetary policy ineffectiveness, comparable empirical work has not been undertaken for the interwar gold exchange standard. Two features of the latter period make it attractive for addressing issues of monetary independence. First, it was a time of very few restrictions on capital movements--the absence of exchange controls is a pre-requisite for fully endogenous money supply in the short run. Second, the sterilization bias is unlikely to emerge in monthly data because the monetary authorities did not have sufficient tools to offset reserve flows within a month. Moreover, strong commitment to maintaining the existing monetary arrangements makes the complete disregard for external constraints, implied by a monthly sterilization policy, unlikely.;Monthly statistics for fifteen European countries, Canada and the United States are assembled, and a reserve-flow equation is estimated in its reduced form for each country. With the exception of the United States, the empirical results are striking--changes in the domestic credit component are offset by reserve flows within a month. This finding is consistent with the absence of monetary autonomy. At the same lime, monetary policy emerges as a powerful tool for ensuring balance-of-payments equilibrium.;The research indicates that, given rapid portfolio adjustments, the offset equation should be estimated on high-frequency data. In contrast to the typical concern about a sterilization bias of the offset coefficients, both empirical and historical analysis point to an accommodation bias for a number of countries. The dissertation concludes with a discussion of the relevance of the empirical findings for the collapse of the interwar gold exchange standard. |
