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

64 Pages Posted: 28 May 2021 Last revised: 9 Nov 2021

See all articles by Mathieu Pedemonte

Mathieu Pedemonte

Inter-American Development Bank (IDB)

Bernardo Candia

University of California, Berkeley

Date Written: November 8, 2021


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, N12, E65, F41, F02

Suggested Citation

Pedemonte, Mathieu and Candia, Bernardo, Export-Led Decay: The Trade Channel in the Gold Standard Era (November 8, 2021). FRB of Cleveland Working Paper No. 21-11r, Available at SSRN: https://ssrn.com/abstract=3854039 or http://dx.doi.org/10.2139/ssrn.3854039

Mathieu Pedemonte (Contact Author)

Inter-American Development Bank (IDB)

1300 New York Avenue NW
Washington, DC 20577
United States

Bernardo Candia

University of California, Berkeley

310 Barrows Hall
Berkeley, CA 94720
United States

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