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The Benefits of Commitment to a Currency Peg: Aggregate Lessons from the Regional Effects of the 1896 U.S. Presidential Election

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  • Scott L. Fulford

    (Consumer Financial Protection Bureau)

  • Felipe Schwartzman

    (Federal Reserve Bank of Richmond)

Abstract

We develop a method to use the one-time cross-sectional impact of a cleanly identified shock to identify its aggregate impact through the use of a factor model. We apply this methodology to evaluate the importance of fluctuations to the commitment to a currency peg for macroeconomic outcomes during the gold standard period in the United States. The presidential election in 1896 provides a cleanly identified positive shock to commitment to the gold standard. After the election, bank leverage increased substantially, particularly in states where gold was in greater use. Using the latent factor identified by the election, we find that full commitment to gold had the potential to reduce the volatility of real activity overall by a significant amount in the last two decades of the nineteenth century, as well as substantially mitigate the economic depression starting in 1893.

Suggested Citation

  • Scott L. Fulford & Felipe Schwartzman, 2020. "The Benefits of Commitment to a Currency Peg: Aggregate Lessons from the Regional Effects of the 1896 U.S. Presidential Election," The Review of Economics and Statistics, MIT Press, vol. 102(3), pages 600-616, July.
    • Handle: RePEc:tpr:restat:v:102:y:2020:i:3:p:600-616
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    Cited by:

    1. Colin Weiss, 2020. "Intermediary Asset Pricing during the National Banking Era," International Finance Discussion Papers 1302, Board of Governors of the Federal Reserve System (U.S.).
    2. Colin Weiss, 2020. "Contractionary Devaluation Risk: Evidence from the Free Silver Movement, 1878-1900," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 705-720, October.
    3. Christian Matthes & Felipe Schwartzman, 2019. "The Demand Origins of Business Cycles," 2019 Meeting Papers 1122, Society for Economic Dynamics.
    4. Christian Matthes & Felipe Schwartzman, 2019. "What Do Sectoral Dynamics Tell Us About the Origins of Business Cycles?," Working Paper 19-9, Federal Reserve Bank of Richmond.

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