Working Paper

Export-Led Decay: The Trade Channel in the Gold Standard Era

Abstract: Flexible exchange rates can facilitate price adjustments that buffer macroeconomic shocks. We test this hypothesis using adjustments to the gold standard during the Great Depression. Using prices at the goods level, we estimate exchange rate pass-through and find gains in competitiveness after a depreciation. Using novel monthly data on city-level economic activity, combined with employment composition and sectoral export data, we show that American exporting cities were significantly affected by changes in bilateral exchange rates. They were negatively impacted when the UK abandoned the gold standard in 1931 and benefited when the US left the gold standard in April 1933. We show that the gold standard deepened the Great Depression, and abandoning it was a key driver of the economic recovery.

Keywords: Exchange rate regime; currency unions; export-led growth; Great Depression; gold standard;

JEL Classification: E32; F45; N12;

https://doi.org/10.26509/frbc-wp-202111

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2021-05-25

Number: 21-11

Related Works

• Working Paper Revision: Export-Led Decay: The Trade Channel in the Gold Standard Era