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Working Paper
The Effect of Local Economic Shocks on Local and National Elections
We study the reaction of voters to shifts in local economic conditions. Using the departure from the gold standard of US trading partners in 1931 and the US in 1933, we exploit heterogeneity in export destinations, creating local differences in expenditure-switching in US counties by isolating the aggregate effects of the monetary shocks using time fixed effects. We find significant changes in local voting behavior in response to both shocks, one originating abroad, and another domestically. The response to both shocks have similar magnitude. We argue that voters punished and rewarded ...
Report
Great expectations and the end of the depression
This paper argues that the U.S. economy's recovery from the Great Depression was driven by a shift in expectations brought about by the policy actions of President Franklin Delano Roosevelt. On the monetary policy side, Roosevelt abolished the gold standard and-even more important-announced the policy objective of inflating the price level to pre-depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending. Together, these actions made his policy objective credible; they violated prevailing policy dogmas and introduced a policy regime change such as that ...
Working Paper
A Model of the Gold Standard
The gold standard emerged as the international monetary system by the end of the 19th century. We formally study its properties in a micro-founded model and find that the scarcity of the world gold stock not only results in a suboptimal output of goods that are purchased with money but also subjects the domestic economy of a country to external shocks. The creation of inside money in the form of private credit instruments adds to the money supply, usually resulting in a Pareto improvement, but opens the door to the international transmission of banking crises. These properties of the gold ...
Working Paper
Did adhering to the gold standard reduce the cost of capital?
A commonly cited benefit of the pre-World War One gold standard is that it reduced the cost of international borrowing by signaling a country?s commitment to financial probity. Using a newly constructed data set that consists of more than 55,000 monthly sovereign bond returns, we test if gold-standard adherence was negatively correlated with the cost of capital. Conditional on UK risk factors, we find no evidence that the bonds issued by countries off gold earned systematically higher excess returns than the bonds issued by countries on gold. Our results are robust to allowing betas to differ ...
Trade and Gold Reserves after the Demise of the Classical Gold Standard
After the early 1920s, the relationship between gold reserves and trade flows was tenuous at best as the international payments system experienced heightened uncertainty and significant change.
Journal Article
The monetary economics of gold
Discussion Paper
Crisis Chronicles – The California Gold Rush and the Gold Standard
On the crisp morning of January 24, 1848, James Marshall, a carpenter in the employ of John Sutter, traveled up the American River to inspect a lumber mill that Sutter had ordered constructed close to timber sources. Marshall arrived to find that overnight rains had washed away some of the tailrace the crew had been digging. But as Marshall examined the channel, something shiny caught his eye, and as he bent over to retrieve the object, his heart began to pound. Gold! Marshall and Sutter tried to contain the secret, but rumors soon spread to Monterey, San Francisco, and beyond--and the rush ...
Discussion Paper
Real exchange rates under the gold standard
Purchasing power parity is one of the most important equilibrium conditions in international macroeconomics. Empirically, it is also one of the most hotly contested. Numerous recent studies, for example, have sought to determine the validity of purchasing power parity using data from the post-Bretton-Woods float and have reached different conclusions. We assert that most such studies are flawed for two reasons. First, the post-1973 data contain, by definition, only a very limited amount of the low-frequency information relevant for examination of long-run parity. Second, the dynamic ...
Journal Article
The changing role of gold in the International Monetary System
Special issue on gold