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Exchange Rates in the Periphery and International Adjustment Under the Gold Standard

Solomos Solomou and Luis Catão ()

No 2003/041, IMF Working Papers from International Monetary Fund

Abstract: The role of exchange rate flexibility in the periphery of the gold standard has been grossly overlooked. This paper builds a new dataset on trade-weighed exchange rates for the period 1870-1913 and finds that large currency movements in periphery countries operating inconvertible paper-money and silver-standard regimes induced major fluctuations in effective exchange rates worldwide. We relate the phenomenon to the international trade structure at the time and show that such currency fluctuations had powerful effects on trade flows. We conclude that nominal exchange rate flexibility in the periphery was an important ingredient of international payments adjustment under the gold standard.

Keywords: WP; exchange rate; Gold standard; silver standard; exchange rates; international trade; REER elasticity; fluctuations in the periphery; exchange rate movement; elasticity of the trade balance; silver-standard regime; EC coefficient; exchange rate peg; exchange rate adjustments in the periphery; trended appreciation; gold standard periphery; income elasticity; countries Mexico; Real effective exchange rates; Real exchange rates; Nominal effective exchange rate; Gold; South America (search for similar items in EconPapers)
Pages: 37
Date: 2003-02-01
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Handle: RePEc:imf:imfwpa:2003/041