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

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2021-11-08

Number: 21-11r

Related Works

• Working Paper Revision: Export-Led Decay: The Trade Channel in the Gold Standard Era