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Why did Countries Adopt the Gold Standard? Lessons from Japan

  • Kris James Mitchener

    (Santa Clara University (USA), UCLA (USA) and NBER (USA))

  • Masato Shizume

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Marc D. Weidenmier

    (Claremont McKenna College (USA) and NBER (USA))

Why did policymakers adopt the gold standard? Although previous research has identified ex post effects of gold standard adoption on trade and bond yields, few studies have sought to understand whether these were the actual outcomes of interest to policymakers at the time of adoption. We examine Japan's adoption of the gold standard in 1897 to understand both the ex ante motives policymakers gave for wanting to go onto the gold standard and the ex post effects of gold standard adoption. By focusing on multiple outcome variables that were of interest to contemporaries, we are able to shed light on the political economy of the adoption of fixed exchange rates. In contrast to previous studies examining bond yields, we find little evidence that joining the gold standard reduced Japan's country risk or that it resulted in a domestic investment boom. On the other hand, we find that membership in the gold standard increased bilateral trade flows. The boost in trade appears to have been largest between Japan and its trading partners on the silver standard, suggesting that the depreciation of gold against silver from 1897-1914 increased the competitiveness of Japanese exports.

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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 228.

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Length: 51 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:kob:dpaper:228
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  1. Meissner, Christopher M., 2005. "A new world order: explaining the international diffusion of the gold standard, 1870-1913," Journal of International Economics, Elsevier, vol. 66(2), pages 385-406, July.
  2. Lopez-Cordova, J. Ernesto & Meissner, Chris, 2000. "Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era," Center for International and Development Economics Research, Working Paper Series qt1b04r034, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  3. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe," Open Economies Review, Springer, vol. 16(2), pages 135-152, April.
  4. Reuven Glick & Alan M. Taylor, 2010. "Collateral Damage: Trade Disruption and the Economic Impact of War," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 102-127, February.
  5. Ferguson, Niall & Schularick, Moritz, 2006. "The Empire Effect: The Determinants of Country Risk in the First Age of Globalization, 1880 1913," The Journal of Economic History, Cambridge University Press, vol. 66(02), pages 283-312, June.
  6. Lawrence J. Christiano, 1988. "Searching For a Break in GNP," NBER Working Papers 2695, National Bureau of Economic Research, Inc.
  7. Hugh Rockoff & Michael D. Bordo, 1996. "The Gold Standard as a "Good Housekeeping Seal of Approval"," Departmental Working Papers 199528, Rutgers University, Department of Economics.
  8. Maurice Obstfeld & Alan M. Taylor, 2002. "Sovereign Risk, Credibility and the Gold Standard: 1870-1913 versus 1925-31," NBER Working Papers 9345, National Bureau of Economic Research, Inc.
  9. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
  10. Moritz Schularick & Niall Ferguson, 2005. "“The Thin Film Of Gold”: The Limits Of Monetary Commitments," Macroeconomics 0509009, EconWPA.
  11. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  12. J. Laurence Laughlin, 1897. "The Gold Standard in Japan," Journal of Political Economy, University of Chicago Press, vol. 5, pages 378.
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