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The Real Exchange Rate and Fiscal Policy During the Gold Standard PeriodEvidence from the United States and Great Britain

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  • Graciela L. Kaminsky
  • Michael Klein

Abstract

We study the determinants of the dollar/pound real exchange rate from 1879 to 1914 focusing on the role of fiscal policy. We present a simple dynamic model of the real exchange rate to frame our analysis. The econometric results are based upon the decomposition of the sources of the innovation of the real exchange rate drawn from a structural vector autoregression model. We find little evidence that changes in tariffs and government spending affected the real exchange rate. There is some stronger empirical evidence that shocks to deficits were associated with the fluctuations in the real exchange rate.

Suggested Citation

  • Graciela L. Kaminsky & Michael Klein, 1994. "The Real Exchange Rate and Fiscal Policy During the Gold Standard PeriodEvidence from the United States and Great Britain," NBER Working Papers 4809, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4809
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    Cited by:

    1. John H. Rogers, 1995. "Real shocks and real exchange rates in really long-term data," International Finance Discussion Papers 493, Board of Governors of the Federal Reserve System (U.S.).
    2. Massimo Giuliodori, "undated". "The Empirical Relevance of a basic sticky-price intertemporal model," Working Papers 2001_17, Business School - Economics, University of Glasgow.
    3. Anton Muscatelli & Franco Spinelli & Carmine Trecroci, 2001. "Real Exchange Rates in the Long Run: Evidence from Historical Data," Working Papers 2001_6, Business School - Economics, University of Glasgow.
    4. Nicholas Apergis, 2003. "Testing Purchasing Power Parity: results from a new foreign exchange market," Applied Economics Letters, Taylor & Francis Journals, vol. 10(2), pages 91-95.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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