Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260846 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9716
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We estimate the causal impact of countercyclical interest rates on macroeconomic outcomes in open economies. To identify countercyclical interest rates, we construct a new database of short-term interest rates, principal exports, and international commodity prices for 40 economies from 1870 to 1913. This era of capital mobility, nominal anchors, specialization and trade integration, exposed economies to multiple exogenous demand-side shocks. Specialization and trade integration subjected economies to a “commodity lottery” in the form of price fluctuations in world markets. Capital mobility and a currency peg exposed them to interest-rate movements originating in the U.K., the largest economy and linchpin of the classical gold standard. We identify (i) positive effects of commodity-export prices on real GDP and the domestic price level and (ii) negative effects of exogenous changes in short-term interest rates on the same variables. We then show that countercyclical interest rates, defined relative to export-price shocks, stabilized both output and the domestic price level. This stabilization was more effective for the price level than for output.
Subjects: 
countercyclical interest rates
stabilization
gold standard
commodity lottery
JEL: 
E52
E32
F33
F41
F62
N10
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.