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Export-Led Decay: The Trade Channel in the Gold Standard Era

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  • Bernardo Candia
  • Mathieu Pedemonte

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.

Suggested Citation

  • Bernardo Candia & Mathieu Pedemonte, 2021. "Export-Led Decay: The Trade Channel in the Gold Standard Era," Working Papers 21-11r, Federal Reserve Bank of Cleveland, revised 08 Nov 2021.
    • Handle: RePEc:fip:fedcwq:92067
    DOI: 10.26509/frbc-wp-202111r
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    References listed on IDEAS

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    Cited by:

    1. Juan Herreño & Matias Morales & Mathieu Pedemonte, 2023. "The Effect of Local Economic Shocks on Local and National Elections," Working Papers 23-08, Federal Reserve Bank of Cleveland.

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    More about this item

    Keywords

    gold standard; Great Depression; fixed exchange rates; external sector;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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