Exchange Rates in the Periphery and International Adjustment Under the Gold Standard

Luis Catão, Solomos Solomou
2003 IMF Working Papers  
The role of exchange rate flexibility in the periphery of the gold standard has been grossly overlooked. This paper builds a new dataset on trade-weighed exchange rates for the period 1870-1913 and finds that large currency movements in periphery countries operating inconvertible papermoney and silver-standard regimes induced major fluctuations in effective exchange rates worldwide. We relate the phenomenon to the international trade structure at the time and show that such currency
more » ... had powerful effects on trade flows. We conclude that nominal exchange rate flexibility in the periphery was an important ingredient of international payments adjustment under the gold standard. JEL Classification Numbers: F31, F33, N10 We thank Tam Bayoumi, Mike Bordo, and Ken Rogoff for insightful comments on an earlier draft, and Emily Conover for excellent research assistance. We would also like to thank the innumerous colleagues around the globe who helped us track down much of the historical data used in this paper. Solomou gratefully acknowledges the support of the U.K. ESRC scheme on Understanding the Evolving Macroeconomy and the Leverhulme Trust Travel Fellowship scheme. The views expressed here are the authors' alone and do not necessarily reflect those of the IMF or any of the persons and institutions mentioned above.
doi:10.5089/9781451846126.001 fatcat:elrrzn7b4ze4faykhaso4xlqlm