Adjustment under the Classical Gold Standard (1870s-1914): How Costly did the External Constraint Come to the European periphery?

Conventional wisdom has that peripheral economies had to `play by the rules of the game` under the Classical Gold Standard (1870s-1914), while core countries could get away with frequent violations. Drawing on the experience of three core economies (England, France, Germany) and seven peripheral economies (Austria-Hungary, Bulgaria, Greece, Italy, Norway, Serbia, Sweden), my paper argues for a more nuanced perspective on the European periphery. While the conventional view might be true for some countries - most notably the Balkan countries - our findings, based on a VAR model and impulse response functions, suggest that the average gold drain that a specific peripheral economy was exposed to differed substantially from country to country. We also show that some of the peripheral economies, most notably Austria-Hungary, always enjoyed enough pulling power via discount rate policy to reverse quickly any such gold outflow. In sum, while the experience of some peripheral economies under gold was poor and hence normally short-lived, the experience of other peripheral countries resembled more those of the core economies.