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

37 Pages Posted: 29 Jan 2006

See all articles by Luis Catão

Luis Catão

International Monetary Fund (IMF)

Solomos Solomou

University of Cambridge, Faculty of Economics

Date Written: February 2003

Abstract

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 paper-money 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 fluctuations 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.

Keywords: Gold standard, silver standard, exchange rates, international trade

JEL Classification: F31, F33, N10

Suggested Citation

Catão, Luis and Solomou, Solomos, Exchange Rates in the Periphery and International Adjustment Under the Gold Standard (February 2003). IMF Working Paper No. 03/41, Available at SSRN: https://ssrn.com/abstract=879116

Luis Catão (Contact Author)

International Monetary Fund (IMF) ( email )

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Solomos Solomou

University of Cambridge, Faculty of Economics ( email )

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