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Why did Countries Adopt the Gold Standard? Lessons from Japan

Published online by Cambridge University Press:  01 March 2010

Kris James Mitchener*
Affiliation:
Associate Professor, Department of Economics, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053; and Research Associate, NBER. E-mail: kmitchener@scu.edu.
Masato Shizume*
Affiliation:
Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan, Nihonbashi-Hongokucho 2-1-1, Chuo-ku, Tokyo 103-8660, Japan. E-mail: masato.shizume@boj.or.jp.
Marc D. Weidenmier*
Affiliation:
Associate Professor, Department of Economics, Claremont McKenna College, 500 East Ninth Street, Claremont, CA 91711; and Research Associate, NBER. E-mail: mweidenmier@cmc.edu.

Abstract

Why did policymakers adopt the gold standard? We first examine the political economy of Japan's adoption of the gold standard in 1897 by exploring the ex ante motives of policymakers as well as how the legislative decision to adopt gold won approval. We then show that joining the gold standard did not reduce Japanese interest rates or lead to a domestic investment boom. However, we find that membership in the gold standard increased Japan's exports by lowering transactions costs. Joining gold allowed Japan to tap into its growing share of global trade that was centered on the gold standard.

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ARTICLES
Copyright
Copyright © The Economic History Association 2010

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