Trade, Exchange Rate Regimes and Output Co-Movement: Evidence from the Great Depression

31 Pages Posted: 11 Apr 2011

See all articles by Gabriel P. Mathy

Gabriel P. Mathy

University of California, Davis

Christopher M. Meissner

University of California, Davis

Date Written: April 2011

Abstract

A large body of cross-country empirical evidence identifies monetary policy and trade integration as key determinants of business cycle co-movement. Partially consistent with this, many argue that the re-emergence of the gold standard allowed for the global transmission of a deflationary shock in 1929 that culminated in the Great Depression. It is puzzling then to see decreased co-movement between 1920 and 1927 when international integration increased and nations returned to the gold standard. Fixed exchange rates and global trade were also on the rise after 1932, but co-movement declined again. Our empirical results shows that exchange rate regimes and trade were associated with higher co-movement at the bilateral level while common shocks and exchange control policies also mattered. Much of the fall after 1932 was driven by the rise of smaller blocs of monetary and trade cooperation and an inter-bloc fall in co-movement.

Suggested Citation

Mathy, Gabriel Patrick and Meissner, Christopher M., Trade, Exchange Rate Regimes and Output Co-Movement: Evidence from the Great Depression (April 2011). NBER Working Paper No. w16925, Available at SSRN: https://ssrn.com/abstract=1805430

Gabriel Patrick Mathy (Contact Author)

University of California, Davis ( email )

One Shields Drive
Davis, CA 95616-8578
United States

Christopher M. Meissner

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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