Export-Led Decay: The Trade Channel in the Gold Standard Era

Bernardo Candia and Mathieu Pedemonte

No 21-11r, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Flexible exchange rates can facilitate price adjustments that buffer macroeconomic shocks. We test this hypothesis using adjustments to the gold standard during the Great Depression. Using prices at the goods level, we estimate exchange rate pass-through. Using novel monthly data on city-level economic activity, combined with employment composition and sectoral export data, we show that American exporting cities were significantly affected by changes in bilateral exchange rates. With those results we calibrate a general equilibrium model to obtain aggregate effects from cross-sectional estimates. We show that the gold standard deepened the Great Depression, and abandoning it was a key driver of the economic recovery.

Keywords: gold standard; Great Depression; fixed exchange rates; external sector (search for similar items in EconPapers)
JEL-codes: E32 E65 F02 F41 N12 (search for similar items in EconPapers)
Pages: 64
Date: 2021-05-25, Revised 2021-11-08
New Economics Papers: this item is included in nep-his, nep-mac and nep-opm
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Citations: View citations in EconPapers (1)

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DOI: 10.26509/frbc-wp-202111r

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