DP11640 Pegxit Pressure: Evidence from the Classical Gold Standard
|Author(s):||Kris James Mitchener, Goncalo Pina|
|Publication Date:||November 2016|
|Keyword(s):||commodity prices, currency risk, exchange-rate devaluation|
|JEL(s):||F31, F33, F36, F41, N10, N20|
|Programme Areas:||Economic History, International Macroeconomics and Finance|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11640|
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.