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Title: Pegxit Pressure: Evidence from the Classical Gold Standard

Author(s): Kris James Mitchener and Goncalo Pina

Publication Date: November 2016

Keyword(s): commodity prices, currency risk and exchange-rate devaluation

Programme Area(s): Economic History and International Macroeconomics and Finance

Abstract: We develop a simple model that highlights the costs and benefits of fixed exchange rates as they relate to trade, and show that negative export-price shocks reduce fiscal revenue and increase the likelihood of an expected currency devaluation. Using a new high-frequency data set on commodity-price movements from the classical gold standard era, we then show that the model's main prediction holds even for the canonical example of hard pegs. We identify a negative causal relationship between export-price shocks and currency-risk premia in emerging market economies, indicating that negative export-price shocks increased the probability that countries abandoned their pegs.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11640

Bibliographic Reference

Mitchener, K and Pina, G. 2016. 'Pegxit Pressure: Evidence from the Classical Gold Standard'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11640