Pegxit Pressure: Evidence from the Classical Gold Standard

Kris Mitchener and Goncalo Pina

No 11640, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a simple model that highlights the costs and benefits of fixed exchange rates as they relate to trade, and show that negative export-price shocks reduce fiscal revenue and increase the likelihood of an expected currency devaluation. Using a new high-frequency data set on commodity-price movements from the classical gold standard era, we then show that the model’s main prediction holds even for the canonical example of hard pegs. We identify a negative causal relationship between export-price shocks and currency-risk premia in emerging market economies, indicating that negative export-price shocks increased the probability that countries abandoned their pegs.

Keywords: Currency risk; Commodity prices; Exchange-rate devaluation (search for similar items in EconPapers)
JEL-codes: F31 F33 F36 F41 N10 N20 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (6)

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Working Paper: Pegxit Pressure: Evidence from the Classical Gold Standard (2016)
Working Paper: Pegxit Pressure: Evidence from the Classical Gold Standard (2016)
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