Stuck on Gold: Real Exchange Rate Volatility and the Rise and Fall of the Gold Standard, 1870-1939
AbstractDid adoption of the gold standard exacerbate or diminish macroeconomic volatility? Supporters thought so, critics thought not, and theory offers ambiguous messages. A hard exchange-rate regime such as the gold standard might limit monetary shocks if it ties the hands of policy-makers. But any decision to forsake exchange-rate flexibility might compromise shock absorption in a world of real shocks and nominal stickiness. A simple model shows how a lack of flexibility can be discerned in the transmission of terms of trade shocks. Evidence on the relationship between real exchange rate volatility and terms of trade volatility 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, and this historical pattern suggests that the interwar gold standard was a poor regime choice.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5430.
Date of creation: Jan 2006
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Other versions of this item:
- Chernyshoff, Natalia & Jacks, David S. & Taylor, Alan M., 2005. "Stuck on Gold: Real Exchange Rate Volatility and the Rise and Fall of the Gold Standard, 1870-1939," Working Papers 06-7, University of California at Davis, Department of Economics.
- Alan Taylor & Natalia Chernyshoff & David Jacks, 2005. "Stuck on Gold:Real Exchange Rate Volatility and the Rise and Fall of the Gold Standard, 1870–1939," Working Papers 67, University of California, Davis, Department of Economics.
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-29 (All new papers)
- NEP-FMK-2006-01-29 (Financial Markets)
- NEP-HIS-2006-01-29 (Business, Economic & Financial History)
- NEP-IFN-2006-01-29 (International Finance)
- NEP-MON-2006-01-29 (Monetary Economics)
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- Lin, Justin Yifu & Fardoust, Shahrokh & Rosenblatt, David, 2012. "Reform of the international monetary system : a jagged history and uncertain prospects," Policy Research Working Paper Series 6070, The World Bank.
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