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

Luis Catão () and Solomos Solomou

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: Exchange rates; International trade; Foreign exchange; Gold; Gold standard, silver standard, exchange rate, effective exchange rates, effective exchange rate, trading partners, (search for similar items in EconPapers)
Pages: 37
Date: 2003-02-01
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Handle: RePEc:imf:imfwpa:2003/041