NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Real Exchange Rate and Fiscal Policy During the Gold Standard PeriodEvidence from the United States and Great Britain

Graciela L. Kaminsky, Michael Klein

NBER Working Paper No. 4809
Issued in July 1994
NBER Program(s):IFM

We study the determinants of the dollar/pound real exchange rate from 1879 to 1914 focusing on the role of fiscal policy. We present a simple dynamic model of the real exchange rate to frame our analysis. The econometric results are based upon the decomposition of the sources of the innovation of the real exchange rate drawn from a structural vector autoregression model. We find little evidence that changes in tariffs and government spending affected the real exchange rate. There is some stronger empirical evidence that shocks to deficits were associated with the fluctuations in the real exchange rate.

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Document Object Identifier (DOI): 10.3386/w4809

Published: Modern Perspectives on the Gold Standard, T. Bayoumi, B. Eichengreen, and Taylor, eds., Cambridge: Cambridge University Press, 1996, pp.309-340.

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