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Currency Wars and Trade

Author

Listed:
  • Mitchener, Kris James

    (Santa Clara University, CAGE, CESifo, CEPR & NBER)

  • Wandschneider, Kirsten

    (University of Vienna)

Abstract

The Great Depression is the canonical case of a widespread currency war, with more than 70 countries devaluing their currencies relative to gold between 1929 and 1936. What were the currency war’s effects on trade flows? We use newly-compiled, high- frequency bilateral trade data and gravity models that account for when and whether trade partners had devalued to identify the effects of the currency war on global trade. Our empirical estimates show that a country’s trade was reduced by more than 21% following devaluation. This negative and statistically significant decline in trade suggests that the currency war destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs.

Suggested Citation

  • Mitchener, Kris James & Wandschneider, Kirsten, 2024. "Currency Wars and Trade," CAGE Online Working Paper Series 740, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:740
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/wp740.2024.pdf
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    More about this item

    Keywords

    currency war; monetary regimes; gold standard; competitive devaluations; “beggar thy neighbor; †gravity model JEL Classification: F14; F33; F42; N10; N70;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative

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