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Open Access Publications from the University of California

Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era

  • Author(s): Lopez-Cordova, J. Ernesto
  • Meissner, Chris
  • et al.

In this paper we show that the spread of the classical gold standard in the late nineteenth century increased international trade flows. This positive effect was compounded whenever a group of countries formed a monetary union. Applying the gravity model of trade to more than 1,100 country pairs during the 1870-1910 period, we find that two countries on gold would trade 60 percent more with each other than with countries on a different monetary standard. Moreover, a monetary union would more than double bilateral trade flows. Our findings are relevant for current discussions on alternative monetary arrangements for the twenty-first century.

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