Export-Led Decay: The Trade Channel in the Gold Standard Era
64 Pages Posted: 28 May 2021 Last revised: 9 Nov 2021
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: Suggested Citation