Measuring Financial Stress under the Gold Standard: Evidence from Interwar Czechoslovakia

This paper constructs a monthly Financial Stress Index (FSI) for interwar Czechoslovakia covering November 1929 to September 1938, corresponding to the gold-standard phase of the First Czechoslovak Republic. Using eleven standardised indicators from financial markets, banking and monetary conditions, and the real economy, the paper develops a composite measure of systemic stress for a small open economy operating under the institutional constraints of the interwar gold standard. The estimated chronology is delayed and clustered: stress intensifies after 1931, peaks in 1932–1933, and eases only after the 1934 devaluation of the koruna. The paper evaluates the stability of this chronology under alternative weighting schemes, alternative standardisation procedures, leave-one-variable-out exercises, and alternative crisis-threshold definitions. It further assesses the external validity of the index through predictive regressions for subsequent movements in trade, industrial production, prices, and related macroeconomic indicators. The results show that the main chronology is robust to alternative constructions and that the Czechoslovak Depression is better characterized as a prolonged regime of systemic strain than as a single banking panic. The paper contributes a new monthly macro-financial series for interwar Czechoslovakia and a transparent framework for measuring historical financial stress in data-constrained environments.