Working Paper Revision
Export-Led Decay: The Trade Channel in the Gold Standard Era
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;
JEL Classification: E32; E65; F02; F41; N12;
https://doi.org/10.26509/frbc-wp-202111r
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https://doi.org/10.26509/frbc-wp-202111r
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Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers
Publication Date: 2021-11-08
Number: 21-11r
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- Working Paper Revision (2021-11-08) : You are here.
- Working Paper Original (2021-05-25) : Export-Led Decay: The Trade Channel in the Gold Standard Era