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American Economic Review: Vol. 95 No. 4 (September 2005)
AER Volume. 95, Issue 4 | 
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Effective Exchange Rates and the Classical Gold Standard Adjustment
Article Citation
Catão, Luis A. V., and
Solomos N. Solomou. 2005. "Effective Exchange Rates and the Classical Gold Standard Adjustment."
The American Economic Review,
95(4): 1259-1275.
DOI: 10.1257/0002828054825565
DOI: 10.1257/0002828054825565
Abstract
Using a new international dataset of trade-weighed exchange rates, this paper highlights a neglected adjustment mechanism in the classical gold standard literature. Since gold-pegged countries traded extensively with economies operating more flexible monetary regimes and where parity change was a common adjustment device to systemic shocks, we show that such parity adjustments induced worldwide swings in nominal effective exchange rates. These translated into real exchange rate variations to which trade balances responded with an average elasticity of unity and in the direction of restoring external disequilibria. We conclude that some nominal exchange rate flexibility thus present in the pre-1914 system was instrumental to international payments adjustment.
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Full-text Article
Additional Materials
Download Data Set (723.94 KB) | Link to Appendix (378.16 KB)
Authors
Catão, Luis A. V.
Solomou, Solomos N.
Solomou, Solomos N.
