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Working Paper

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

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.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Candia, Bernardo, and Mathieu Pedemonte. 2021. “Export-Led Decay: The Trade Channel in the Gold Standard Era.” Federal Reserve Bank of Cleveland, Working Paper No. 21-11. https://doi.org/10.26509/frbc-wp-202111