Keynes, purchasing power parity and exchange rate policy in New Zealand during the 1930s depression

Abstract

This paper examines the intellectual pedigree of New Zealand economists’ ideas on exchange rate policy up to and during the 1930s Depression. In 1930, most economists argued that devaluation should not be an integral part of a depression policy package. By the time of the 1932 Economic Committee, however, devaluation was seen by almost every economist as necessary to bring about relative cost readjustment. It is argued that the consensus amongst economists was due to several factors: the transmission (through Copland) of Keynes's open economy precepts and the demonstration that the exchange rate has deviated permanently from its earlier purchasing power parity rate.