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Stuck on gold: Real exchange rate volatility and the rise and fall of the gold standard, 1875-1939

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  • Chernyshoff, Natalia
  • Jacks, David S.
  • Taylor, Alan M.

Abstract

Did the gold standard diminish macroeconomic volatility? Supporters thought so, critics thought not, and theory offers ambiguous messages. Hard regimes like the gold standard limit monetary shocks by tying policymakers' hands; but exchange-rate inflexibility compromises shock absorption in a world of real disturbances and nominal stickiness. A model shows how lack of flexibility affects the transmission of terms-of-trade shocks. Evidence from the late nineteenth and early twentieth century exposes a dramatic change. The classical gold standard did absorb shocks, but the interwar gold standard did not, supporting the view that the interwar gold standard was a poor regime choice.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 77 (2009)
Issue (Month): 2 (April)
Pages: 195-205

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Handle: RePEc:eee:inecon:v:77:y:2009:i:2:p:195-205

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Nominal rigidity Exchange-rate regime Terms-of-trade shocks Optimal monetary policy;

References

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Citations

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Cited by:
  1. David S. Jacks & Christopher M. Meissner & Dennis Novy, 2009. "Trade Booms, Trade Busts, and Trade Costs," CESifo Working Paper Series 2767, CESifo Group Munich.
  2. William D. Craighead & Pao-Lin Tien, 2013. "Nominal Shocks and Real Exchange Rates: Evidence from Two Centuries," Wesleyan Economics Working Papers 2013-002, Wesleyan University, Department of Economics.
  3. �scar Jord� & Moritz Schularick & Alan M Taylor, 2011. "Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons," IMF Economic Review, Palgrave Macmillan, vol. 59(2), pages 340-378, June.

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